Turned off by the risky proposition of taking on more credit card debt during the pandemic,
a skyrocketing number of shoppers have turned to a burgeoning industry of installment payment service apps to manage paying off new TVs or clothes.
But while many customers rave about the ease and transparency of interest-free “buy now, pay later,” or BNPL, apps such as Affirm.
Afterpay and Klarna,some shoppers have found that these services can come with
surprise fees and a long slog to recoup money owed to them after a refund.
Another shopper told NBC News she continued to be charged for months for a $1,000
Sears stove order she canceled and never received.
Another customer told NBC News he paid off a faulty air conditioning unit he returned to Walmart
because he was afraid of his account being sent to collections.
As the popularity of “buy now, pay later” loans grows, these emerging financial products have caught the eyes of regulators.
“It is difficult to shop online without seeing a ‘buy now, pay later’ option,” said Rep. Stephen Lynch, D-Mass., during the hearing.
“However, these products also raise important questions about use of consumer data, the exploitation around spending patterns.
the application of lending laws and the potential for unsustainable levels of consumer debt.”
Before the pandemic, BNPL, which allows shoppers to split up their purchases over time, was already popular among younger, digitally native generations.
according to Adobe Analytics. One-quarter of respondents in an Adobe survey reported they had used a BNPL loan in the last three months.
Over the last year, the top five payment installment services — Klarna, Afterpay, Affirm,
Zip and Sezzle — have seen an overall 100 percent growth compared to the year before.
with 26 million app downloads combined, according to the app analytics and app market data firm App Annie. Tara House, a Walmart spokesperson.
Target announced last month that it is partnering with Affirm and Sezzle to let shoppers break up their payments on purchases ahead of the holiday season.
Affirm “always shows the total amount of interest you’ll pay” at checkout, and does not charge any fees, according to its website.
Afterpay charges late fees that can be $8 or 25 percent of the order amount. Klarna markets itself as “No interests.
No fees,” but has three options that come with varying terms around late fees and interest, according to the company’s website.
“We’re seeing strong demand for ‘buy now, pay later’ for both merchants and consumers, and rapid adoption amongst both, especially among younger consumers
said Jack Dorsey, CEO of the online payment service Square, in an August call with investors. Square acquired Afterpay in August for $29 billion.
“It’s a simple idea to enable our sellers’ customers to pay for purchases later, interest free.
without having to use traditional credit sources,” Dorsey said.
Shoppers are also now using ‘buy now, pay later’ services for smaller purchases,
putting them squarely in line with how people use credit cards, according to Salesforce data.
The average order paid by a BNPL loan is $149, compared to $141 with a credit card, Salesforce said.
In an earnings call with investors last month,
JPMorgan Chase CEO Jamie Dimon said the company will “spend whatever we have to spend to compete with all these folks in our space.”
Unlike traditional credit cards, a big part of the draw to ‘buy now, pay later’ loans is the ability to pay off purchases over time with no interest.
For shoppers like Jace Guyer, a 32-year-old parent of six in St. Joseph, Missouri, who uses gender neutral pronouns
that option helped them budget during a year of pandemic-driven unemployment.
Guyer, who was the family’s sole financial supporter, lost their job at the beginning of the pandemic.
They were two days late in paying their October 2020 bill, resulting in a $25 late fee on top of their balance.
“It was the first time I had ever been late, let alone two days late,” Guyer told NBC News.
“When you look at it, $25 isn’t that much — but $50 in the middle of the pandemic is a lot.”
Guyer financed through Klarna’s “legacy financing solution,” which charges a late fee up to $35
resulting in the assessment of a $25 late fee, said Brendan Lewis
a spokesperson for Klarna, in an email to NBC News.
Globally, the company’s delinquency rate is less than 1 percent, he added.
“As a matter of practice, Klarna works with our customers to ensure they make payments on time,” Lewis said.
Klarna refunded Guyer’s $25 late fee after they disputed the charge.