An increasing number of American consumers are adopting a practice that is very common in Brazil: ‘buy now, pay later’, according to the latest retail report conducted by Adobe Analytics.
In the first two months of 2023, the share of online purchases using services that allow for deferred payment grew by 10%, according to the report. Meanwhile, the number of consumers deferring payment on grocery purchases rose by 40%. Home furniture, another popular category where consumers have been delaying payments, increased by 38% in the same period.
The deferral of payment has been made possible thanks to the popularity of apps like Afterpay or Klarna, which require buyers to link a bank account or debit or credit card, and sign up to pay their bills in weekly or monthly installments with no interest or low interest. Scheduled payments are automatically deducted from the bank account or charged to the credit card.
Some companies conduct credit checks that are not reported to credit agencies before approving borrowers. Most applicants are approved within minutes.
This industry is growing rapidly, according to a report released by the Consumer Financial Protection Bureau. Americans took out about $24.2 billion in loans through ‘buy now, pay later’ programs in 2021, compared to just $2 billion in 2019. This number across the sector is expected to increase even further. Klarna customers purchased $41 billion in products through its global service in the first six months of last year, a 21% increase from the previous year. At PayPal, revenue from ‘buy now, pay later’ services more than tripled in the second quarter of 2022, reaching $4.9 billion.
Another survey, this time from Morning Consult, found that 15% of ‘buy now, pay later’ customers are using the service for routine purchases, such as groceries and gasoline, a type of behavior that raises alarms among financial advisors.
As the sector accumulates customers, delinquency may rise. Inflation is squeezing consumers’ wallets, making it difficult to pay off debts. Borrowers who do not budget properly, especially when persuaded to take out multiple loans at the same time, may find themselves in debt without even realizing it.
Source: Fox Business