Yes, You Can Buy Now, Pay Later. But Should You?: Erin Lowry

Lay away. Credit cards. Installment loans. We’ve been engaging in “buy now, pay later” practices for decades. The latest model actually bears the title. Dubbed as the hottest thing in fintech, start-ups such as Affirm Holdings Inc., Klarna, Afterpay Ltd and even household names including PayPal Holdings Inc. are offering customers the option to spread out the cost of a purchase over smaller, affordable monthly payments.

Millennials and young Gen X shoppers have flocked to buy now, pay later apps with Gen Z not far behind. Are these simply the next innovation in consumer culture? Or should we be worried?

My knee-jerk reaction to sleek offers of “interest-free” and “no fee” financing is skepticism. Surely there’s a catch.

Generally, when it comes to free services, you are the product — whether it’s your data being used or you’re being directed toward another company. Many buy now, pay later, or BNPL, services have secured partnerships and integrations with big name retailers, such as Inc., Walmart Inc., Macy’s Inc. and Bed, Bath & Beyond Inc. Why? Because buy now, pay later tools encourage people to spend.

It’s the same behavioral economics proposition we see with credit cards: You have the ability to make the purchase now, even if you can’t afford it outright. Studies over the decades have demonstrated that those using credit cards are more likely to overspend compared to their cash-using counterparts. (Granted, the connection between overspending and non-tangible currency may change as money becomes more digital.)

In addition to partnerships and integrations, BNPL services may also receive a commission from partner merchants for each sale. And some BNPL models do have loan offerings that charge interest, so it’s important for consumers to understand when interest and fees actually kick in (late payments, for example).