“Buy now, pay later” services became fashionable in the United States

Krista Michels increasingly turns to Online services that allow buyers americans pay for everything from Christmas gifts to monthly bills, with no additional fees known as “buy now, pay later.”

“Now I’m a bit addicted,” said this young mother who lives in Washington state.

He first turned to these solutions offered in physical stores or online to rebuild his credit rating, which was too low for a traditional credit card.

Startups like Affirm, AfterPay, Klarna, and Sezzle allow consumers to pay for a purchase in four interest-free installments, like a typical credit card, but without the associated paperwork and charges.

Michels now uses them whenever he can, at the grocery store or to pay his internet bills.

They have also proven useful for consumers who do not have access to traditional credit, such as new immigrants.

But consumer advocates say shoppers take the same risks as credit cards and should be careful not to saddle themselves with excessive debt and be aware of different terms of services.

“Our concern is that people could get too exposed if they’re not careful,” said Chuck Bell, director of programs at Consumer Reports.

Prudence

The concept of paying in installments is nothing new in American commerce, but the Covid-19 pandemic was a boost for these new services as more customers shopped online.

From chain stores to small online sites, retailers have organized partnerships to offer these payment services to customers and help them buy what they normally couldn’t, while financial institutions, from Mastercard to Goldman Sachs, seek to offer their own. own.

According to a study by consulting firm McKinsey, these payment solutions accounted for 6% of unsecured loans in the United States in 2016, 9% in 2020 and are expected to increase to 13% in 2023.

“It’s practical, saves consumers due to lower interest costs, and it’s disruptive,” said Kenneth Leon, CFRA banking industry specialist.

Big companies agree: Square bought Australia’s AfterPay for $ 29 billion this summer and Affirm is valued at $ 37 billion on Wall Street.

Regulators have taken note of its success, and the Consumer Financial Protection Bureau has warned buyers to be cautious. While they said that the current regulations on these companies are sufficient.

Michels admits that the risk is there. You have never stopped paying for anything you have bought, but you spend more than usual.

“It is almost like a game. What can I do to increase my limit? ”He told AFP.

Different terms

The sheer number of offers with different terms has consumer advocates concerned that buyers will be late with payments.

“The rules and practices of each of these companies may be different,” said Bell of Consumer Reports, noting that many of the users of these services are young and low-income.

Affirm does not charge late fees, but it does charge interest on certain transactions.

Afterpay charges penalties for late payments, but never more than 25% of the original purchase, while Sezzle allows its customers to reschedule a payment on demand.

Some startups work with credit rating firms, but others do not.

They all say they won’t make new loans to clients unless they are up to date with their payments, but nothing is stopping consumers from going elsewhere for credit.

Another concern is that getting refunds is more complicated when an item paid for with one of these services is returned.

Lauren Saunders, associate director of the National Consumer Law Center, said these products are not fundamentally different from traditional credit.

“Even in the bright garb of fintech, new credit products need basic consumer protections to ensure that credit is affordable, accountable, transparent and fair,” he told a congressional hearing earlier this month.