How do buy now, pay later services work? – Marketplace

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Payment company Square is considering buying Afterpay, an Australian fintech company that allows people to pay for items in installments. The price: $ 29 billion in shares.

Afterpay is one of many companies known as “buy now, pay later” services. Others include Affirm, PayPal Credit (formerly Bill Me Later), and Klarna.

This sentence: “Buy now, pay later.” Sounds familiar, doesn’t it?

“Well, technically if you want to get started, I mean paying with a credit card is buying now, paying later,” said Sheridan Trent, at Strawhecker Group, a payment consulting company.

These operations are different in several ways: With “buy now, pay later” services, Trent said, when you make a purchase on a retailer’s website or through an app, you agree to pay up-front by. a number of installments. There is pay in four, “some of them will, like, pay in three, some will pay in six.”

Another big difference from credit cards: “A lot of them come without interest, as long as you pay them off on time,” Trent said.

And often buy now, pay later, businesses don’t do credit checks.

Colleen McCreary is a financial lawyer at Credit Karma, who has interviewed people who use these services.

“For a number of people in our surveys, what we’ve seen is that to people, it doesn’t look like debt,” McCreary said.

Of course, it is the debt. Credit Karma also found that 38% of people who used shopping services now, paid later had missed a payment.

“And, of that group, 72% said they saw their credit rating drop slightly,” McCreary said.

Customers who miss a payment also owe fees and sometimes interest, which is a way to buy now, pay later, businesses make money. The other is to charge retailers.

Retailers have to pay to give their customers the option to use these services, said Marie-Claude Nadeau, at McKinsey.

“And they’ll make, you know, that decision if they think these customers will spend more with them if they can spread their payment over six weeks,” she said.

Or six months, or whatever. Retailers see this as enough attraction that they are often willing to pay higher fees than to accept credit cards.


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