From Bloomberg News and iHeartRadio. It's the big take. I'm wes Kasova today. Buy now, Pay Later is everywhere? Is that a good thing?
Buy No Pay Leader isn't just financing gen Z's online shopping habits. It's helping families put food on the table. US consumers are increasingly using the installment loans to pay for everyday items, including groceries. That's highlighting the financial pain
brought from the worst inflation outbreak in four decades. Now almost half of Americans have used buy No Pay Leader apps, and of those, about one in five rely on them to buy groceries, and some twenty seven percent are using the loans as a bridge to their next paycheck.
Whether you're pushing a shopping cart through a store or just clicking one online. When you reach the checkout, you might be invited to sign up for one of these ubiquitous buy now pay later services. They let you take your stuff and pay it off over time without interest. It's fast and convenient, and you get what you want right away, even if you can't quite afford it just yet. And that's where things sometimes get complicated. Reporters Augustva, Sariva
and Paulina Caccero. You heard her at the top of the show talking to Bloomberg Quicktech. They looked into these services, which millions of Americans use. They found a lot of people who love Buy now, Pay Later's easy access to credit without all the scrutiny of a credit card. But for those who fall behind on the payments, it can
wind up costing more than they bargain for. Well, and we've had laywaight plans and deferred payments for a long time, but by now, pay later is kind of like a different sort a way of deferring your payments.
Buy now, Pay Later is kind of like a layaway plan of the early oughts, but with an instant gratification twist.
You know.
The short term loans surged in popularity during the pandemic thanks to consumers who are flushed with extra stimulus cash and limited to online shopping. So five major buy now pay leader companies in the US originated one hundred and eighty million loans totally twenty four point two billion in twenty twenty one. That's a your tenfold increase from twenty nineteen, according to the Consumer Financial Protection Bureau oh GUSSA.
Where are some of the places that we're seeing this. It seems like every time I try to buy something in a store or online, they're offering to have me not pay for it the day I'm buying it.
Yeah, they're pretty much everywhere these days. A year ago, you could use it to buy let's say, electronics, clothes. Now you can use it to buy groceries. You can use it to buy even guns, So it's pretty much everything. And one thing that we noticed and now we're reporting is that whereas some grocery stores do have their on buy now pay later plans, they have partnerships with specific
buy now, pay later companies. At the same time, you're also seeing apps like insta Card where you can choose pretty much any grocery store that lacks you pay with buy now pay later. So at those point of possibilities are pretty much endless.
Paulina, for people who haven't actually use this service, can you explain how it works?
So by now pay later options are basically short term financing options that lets consumers make a purchase and take it home now for a small payment and paying for it in full. Leater customers pay back for the item in several installments over a set period of time, usually every two weeks or once a month. Many of them promise little to no fees, no interests, and a pretty instant or quick credit approval.
What are some of the companies that are doing this?
So some of the big companies that are financing these short term loans, You've probably heard of them all over Instagram or TikTok. There's after Pay, there's Klarna, there's a firm, there's zippay, and even credit cards are getting into the buy now, pay later business as well and offering the installment loan plans via credit cards.
Yeah, and beyond some of the traditional by now, pay later companies. Last month, for example, we saw Apple and the buy now, Pay later business.
Apple has also developed its own credit check technology and its own lending mechanism where they're going to scrutinize past customer purchase history. Whatever you've spent at an Apple retail store, online store, which movies you've bought, if you've paid off your subscriptions, and maybe your Apple card installments, your overall credit score. Right, they'll use that data to determine how much of a loan you'll get for buy now, Pay later.
That loan range is actually quite small compared to what you're getting from other providers, but they're no interest right. It's four payments over six weeks, and the loan amounts are between fifty dollars and one thousand dollars, and if you pay that off, you can always get more money for a future buy now Pay Later transaction through Apple Pay.
That's Chief Technology correspondent Mark German, who was speaking on Bloomberg Television and AGUSA. You report that Apple isn't the only big company eyeing buy now pay.
Later Earlier this year, we have some news about well more possibly getting involved in that too, so we're seeing more and more bigger companies do that.
Even though buy now pay Leader products largely advertise themselves as being risk free or interest free, that's only true if you follow all of the rules. Once you start falling behind on payments, you can actually start to accrue late fees or interest, you know, sometimes at interest rates that rival out of credit cards. One of the hidden fees that a lot of consumer advocates talk about in the buy now pay Leader space is when people use their credit card to pay off their buy now Pay
Leader loans. So people are taking loans out on loans and you can imagine how you know that can start to really pile up. So how it works is these buy now pay Leader services. Retailers pay fees to be able to offer buy now pay Leader options to their customers, and that's where most of these providers are actually making their money. It's not from consumers, it's from retailers. And part of the value proposition is that most buy now Pay later users tend to buy more than they would
without these services. Providers are telling retailers that a customer's average order value is anywhere from twenty percent to eighty five percent higher with their services.
One of the things that we know when it comes to the people who are using these services is that seventy percent of the buy now Pay later users actually have credit card data already, and not only that, but on average they have twelve thousand dollars less in savings
then non buy now Pay later users. When we think about buy now, Pay Later, we think about people using it to buy stuff they want, things like electronics, things like clothes, But for a lot of people, they're actually using this as a loss resort to buy groceries, to buy essentials. We're seeing people using it to buy school supplies. For example, we actually saw to the study from Landing Tree.
The found that half of Americans have been using by Now Pay Later, and of all of those by Now Pay Later users, twenty percent of them, so pretty much one in five is using it to buy groceries. And not only that, twenty five percent of buy Now Pay Later users are using it as a bridge to their next paycheck. So it's either that or nothing in many cases. And on top of that, when we look at demographics, it's usually minorities that use these services. It tends to
be Hispanic and black users. We know, it tends to be young people and also women.
Paulina, you mentioned earlier about how this became especially popular in the pandemic, and now we have rising inflation, people's paychecks aren't going as far. How much does that play into it.
Buy not pay later services became widespread in the pandemic, but as credit card interest rates hit around twenty percent, people are looking for other ways of financing, you know, everyday needs. We talk to some users who did that, and actually the Federal Reserve found that, you know, around sixty percent of people with an income under fifty thousand tended to use by now pay later. One of the reasons that people use by now pay Leader is to
avoid using their credit card. So as people start using their credit cards to you know, help bridge the paycheck and seeing those balances rise with the promise of no interest by now pay Leader services are becoming a more attractive option.
WILS.
Just to give you an idea of how much inflation has impacted some of these families, Grocery prices are actually up eight point four percent from last year, and that compared to the overall inflation in the US is even higher. So for a lot of families it's becoming harder and harder to make ends meet. The Department of Agriculture actually estimates that a family of four they need to span one thousand dollars per month to get a nutritia's diet and that's almost twice how much he used to cost
only three years before. So things are going up very fast and before a lot of families they don't have a lot of options out there to get them through the end of the month.
And what do the companies say about people falling behind on payments, About whether or not these encourage people to spend money that they don't have.
We actually spoke to Chlorina, one of the major buy now pay later firms out there, and what they told us is that they see their product as something that helps people get through the end of the month, so for them, buye now pay later is another option out there.
Overall, buy now pay later can be a really useful financial tool for people who know how to use it properly. But the risk that we see comes from the lack of regulation at the federal and state level. Because of the way that buy now pay later products work, they don't fall under the Truth and Lending Act, so we don't have the same consumer protections in place as we would for people who are taking out a loan with a credit card or other credit providers.
After the break the psychology that makes these buy now services so appealing.
I use after pay for flights, furniture, vacations.
Would you ever use it on groceries?
Yeah, for smaller things like that, I'll go ahead and at least have the funds, And if I want to go ahead and do it, it's just an easier kind of mind frame. Credit cards will go ahead and run your credit destroy it. You just don't want to get yourself to a point where credit cards where you end up being in collections or being in a debt situation where your credit score is affected and you won't be able to get any cards or any approvals if you
need it a loan. Who knows you might want to go ahead and renovate your apartment.
I use it all the time.
Can I ask what you use it on?
Purchasing just outfits and a lot of merchants, attire, gym stuff, Target, all the main stores, even blooming those takes it. One of the kids will ask you for something and you put it in your budget and you're like, oh, then you do it, and you know, you break it down the four pay it makes it makes life a little bit easier.
I guess.
So there seems to be a lot of consumer psychology behind the buy now, pay it later, where they know how people behave Yes.
One of the researchers I spoke to for the story Professor Marco DiMaggio at Harvard Business School. He's done a lot of research on some of the reasons that lead people to use buy now, Pay later. Something that seemed really interesting that sort of came across from what he was telling me is that people often seem to not have any object permanence when it comes to their finances.
For example, you're buying a pair of sneakers, right, and you're using buy now, Paid later pain for installments, So in your mind you're only spending fifty dollars to date, right, you totally forget about the one hundred and fifty that you're going to have to pay going forward. And for those people, that means that even if you have those two hundred dollars in your bank account, in your mind,
you still have one hundred and fifty to span. So that means you might leave the store today and tomorrow you decide to span one hundred and fifty and a shirt, use buy now, Pay Later, and in your mind you just span one hundred, even though you've already spanned three hundred dollars total. Though, there is a lot of psychology when it comes to that, and I feel like the danger when it comes to groceries is that this is
a recurrent purchase. If I use buy now, Pay Later to buy eggs and meat this week, I'm probably going to have to buy those things again next week, right, And when I realize I might still be paying for a carton of bags I bought three months ago.
You know, I do think that buy now, pay later is a different way of paying back alone than most consumers are used to. When the financial burden of your purchase isn't hitting your bank accou out all at once, people think that they can afford more than they really can. We can compare it to when credit cards first came out.
Studies found that credit card users were likely to spend more than someone paying with cash, and buy no pay leader feels like another new financial product that people are not used to managing or handling.
You spoke to some people who have used this, and some people like it, and other people felt like it became a financial trap. What do they tell you?
So?
One of the things that by Now Pay Later users told us is that it's easily accessible everywhere, and that keeping up with the payments can actually be pretty confusing. You know, while paying something in an installment loan seems pretty simple enough, so imagine if you're making a number of purchases on different days of the week, with more than a dozen services all offering different terms and conditions. Some with installments do every two weeks and another once
a month. I don't think it's that hard to see how consumers can fall behind on payments and how those payment schedules can be pretty confusing.
I suppose somebody listening to this could say, well, if you're taking out that many buy now pay Later loans, maybe you shouldn't be doing that. That there's a certain amount of personal responsibility here.
Yeah. I think the buyer beware is advice that every financial advisor will give. But I think what makes buy now pay Leader different is they're not covered by traditional consumer protection laws. I mentioned the Truth and Lending Act earlier, and it's a landmark law that requires extensive disclosures for unsecured consumer loans, but that only applies to loans that require five or more payments, meaning that buy now pay Leader services often fall in this gray area because they
are limited to four payments. Consumers are at risk because they don't have the same underwriting standards, and a lot of these Bye now pay Leader services don't actually report to credit reporting bureaus. If you apply to a credit card, they will probably know if you have a line of credit out with a number of other credit providers, but with buy they Now pay Later because they don't report.
You don't know if someone is using a firm and Klarna and after pay, and actually, the Consumer Financial Protection Bureau found that that's where consumers fall at risk. Most buy now Pay Later users aren't just using one service, They're using multiple on top of each other, called loan stacking.
Pauliniam, do we know how many people who use the buy now Pay later services are paying it off in the time allotted and how many of them fall behind and wind up having to pay fees?
Roughly eleven percent of borers paid at least one late fee in twenty twenty one, an increase from the prior year, and a growing percentage of loans industry is making are being charged off. That means loans are considered so delinquent that they're likely uncollectible.
When we come back, we hear from a single mother who reluctantly uses buy now, Pay Later services to help make ends meet. August, So, you said how people sometimes find themselves needing by now pay later for essentials. What did people you spoke to tell you about that?
We got very different perspectives. At the same time that we saw more people who see it as an alternative to credit cards. We also saw some people who are using buy now Pay Later as a lost resort. So as an example, someone we spoke to is Face Smith at the Single Motel in Alabama.
Face Smith is just trying to make ends meet. Around sometime last year, she got a notification that buy now Pay Leader services were available at a major retailer, and now she you know, maxes out credit on a number of buy now Pay Later services. She compared getting groceries to putting together a puzzle figuring out where she has money to pay for groceries and using a mix of those to make sure that she has enough nutritious food for her daughter.
Our producer Moberro spoke to Faith Smith and here's what she had to say.
It really started the whole struggle with buying groceries when the pandemic hit. Lost my job of ten years and I took kind of like a placeholder job that paid substantially less than what I was making before, and it got difficult to pay bills, rent, utilities, you know, all those necessities that you need. And it was getting to the point where I was struggling to get groceries on
the table. I was skipping meals, making sure my daughter was able to eat, you know, just do what I needed to do to cut corners when it came to getting food on the table, and it was a struggle for a while, you know, and I was looking for some other weight out of it. I believe it was through a mobile app notification. It was just like, oh,
new stores have been added that you can use. So I started looking and there were like a few grocery stores on after pay Clarna PayPal, and I kind of started looking at the different companies that use that, the grocery stores that accepted it, and I utilize that to you know, get lots of like fresh fruits and vegetables, nothing frivolous, just to make basic, decent, well rounded meals
for my daughter and myself. It's been a lifesaver, but still a headache because you still have those reminders every two weeks. It's like, oh, don't forget, you're gonna have this chunk of money automatically taken out of your bank account, and then you check your bank account, holding your breath hoping it's going to go through. I mean, it's easy to get yourself tied up into possibly using too many of them at the same time. So you have like
all those real stacked on top of each other. But I haven't really had too many issues with it myself. I try not to utilize it if I don't have to, but sadly I have to use it more than I would like to have to use it, and it's like, okay, I can't even go buy like a carton of eggs without having to split it up into payments. It's exhausting sometimes.
And what's your takeaway from that after you hear that story?
You know, I think it's really tough to hear for all of the larger conversations about whether or not we're in a recession or not, Inflation is still really high, and I think sometimes we forget that even those wages are rising at faster pace and inflation for some people, people are still struggling and working to make ends meet, and they're running out of places to turn.
Augusta Paulina, thanks so much for coming on the show. Thank you, thanks for listening to us here at the Big Take. It's a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen and we'd love to hear from you. Email us questions or comments to Big Take at bloomberg dot net. The supervising producer of the Big Take is Vicky Bergalina. Our senior producer is Atherine Fink. Our producers
are mow Berrow and Michael Falero. Kilde Garcia is our engineer. Our original music was composed by Leo Sidrin. I'm West Kasova. We'll be back tomorrow with another big tag.