For Baruch College students who want to make a purchase but lack savings or are concerned about inflation, the words “buy now, pay later” may be the answer for them.
More and more retailers are offering “buy now, pay later,” or BNPL, services as an online payment option, with 85% of consumers expected to use these services this holiday shopping season.
BNPL allows customers to pay for goods in small, interest-free installments over a short period of time. Instead of applying for a card, customers can create an account with the service for free in order to make a purchase.
Most of them require customers to pay four installments, one every two weeks. For most services, users can no longer make purchases with the service until they make a payment.
Most options also require a credit history for approval, although usually not a very high credit score.
Klarna Bank AB was launched in Sweden in 2005 but expanded its BNPL service to the United States in 2015. About 30 million Americans actively use Klarna, according to its 2022 interim report.
“In an environment of rising interest rates, as a consumer you don’t want to be in the hands of credit card companies,” Klarna CEO Sebastian Siemiatkowski said in the report. “Your interests are not aligned with theirs.”
New users can consult the “How does it work?” section. by Klarna. page on its website for more information.
Afterpay Limited was launched in 2014. Australia-based financial services company Block, Inc. owns the service, in addition to mobile payment service Cash App and audio streaming service Tidal.
More than 20 million people actively use the service while more than 140,000 retailers activate it, according to Isabella Scala, communications associate for Afterpay.
“We allow our customers to use their own money and enjoy their purchases immediately without paying over time,” Scala told The Ticker. “Consumers actually get the flexibility that traditional credit offers, without all the hassle.”
For late payments, users are charged a maximum of $8 per installment, but charges are capped at 25% per order. New users can visit Afterpay’s “How it Works” page on its website for more information.
Affirm Holdings Inc. was launched in San Francisco in 2012, advertising itself as a BNPL with no “late fees or surprises” on its website. About 14 million consumers use Affirm, growing 96% in 2021, according to its recent August quarterly report.
While BNPL currently accounts for 2% of e-commerce transactions in the United States, Scala said Afterpay expects that number to grow to 10% by 2024. Consumers in the millennial and middle age groups Gen Z make up the bulk of the user base.
“The next generation of consumers don’t want to use credit and show a strong preference for debit,” Scala said, citing Deloitte research.
To avoid missing payments, BNPL encourages consumers to set budgets to buy goods they can afford in four instalments. If a person can produce and pay a certain amount of money regularly within two weeks, that person should use a BNPL.
Additionally, Scala also recommends that new users turn on notifications for payment reminders and schedule their payments to sync with their paychecks.
What consumers may find different about each BNPL is where they can use them. Some retailers use Afterpay instead of Klarna and vice versa, while Affirm is the only BNPL option for Amazon.com Inc.
This shows the competitiveness within the BNPL business, but students can try each to find out what works best for them.
“Together we continue to build something amazing that makes people’s finances around the world a little easier, a little more transparent and a lot fairer,” said Siemiatkowski. said.
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