When Leondra Garrett, who lives in North Carolina, decided to buy herself three new pairs of shoes last spring, she used buy now, pay later. The method divides the total consumption amount of US$161 into four installments. The coronavirus was raging in the United States at that time, and she didn’t have enough money, so delaying the payment was a good deal for her.

There are not many consumers like Garrett in the United States. The "Buy Now, Pay Later" (BNPL) service she uses is somewhat similar to China's "Huabei", where consumers only need to pay a small amount of money when purchasing goods (some payment service providers Users are even allowed to pay no down payment), and the remaining balance will be settled in four installments over the next few weeks or months.

Although this kind of credit consumption has already begun to take shape in Europe and the United States as early as 2019, its real acceptance by mainstream consumer groups only started after the spring of 2020.

Although analysts vary in their estimates of the size of the industry, the best consensus is that buy now, pay later services have experienced explosive growth in the past year . Management consulting firm Oliver Wyman estimates that BNPL companies facilitated $20 billion to $25 billion in deals in the United States in 2020.

A Reuters survey of 1,038 American adult consumers also found that as many as 42% of respondents had used the "pay now, buy later" service.

However, similar to when credit cards, installment payments and other products first appeared, "buy now, pay later" is also associated with "bad debt rate" and "personal debt crisis". For example, Garrett mentioned above was fined $40 by his service provider because he failed to make payments in the following months. His credit score also dropped by 10 points to 650 points, with a "Fair" rating. ).

On the one hand, it is to stimulate merchant sales and meet consumer demand; on the other hand, it is the debt problem that has emerged. The increasingly popular "buy now, pay later" business is a shot in the arm for the sluggish European and American economies. , or a chronic poison?

The recently popular "buy now, pay later" method is different from the long-standing credit card consumption and installment payment methods in Europe and the United States.

Offering greater flexibility than credit cards, consumers can choose to pay over the course of weeks or months, rather than having to repay at a fixed time each month. In addition, by using this method of payment, users can take away the goods directly, instead of receiving the products after the last payment is made like traditional installment payments.

In this sense, it is more like "Huabei" produced by China's Alipay. The difference is that "Huabei" requires users to make monthly payments, while the payment period of "buy now, pay later" is not limited to months. Each company offers different products and different repayment times.

For example, Swedish bank Klarna and two other companies, Quadpay and Sezzle, offer solutions for settlement in four installments within six weeks; Afterpay is the strictest, requiring users to complete payment in four installments within two weeks. In contrast, the repayment period given by Affirm is much longer, and users can choose to complete the payment in 6 to 18 months.

Similar to Huabei, "buy now, pay later" service providers will also transfer the total amount of the goods to the merchant after the consumer places the order, and at the same time deduct a part of the payment as their own service fee. Then wait for the user to call the service provider the amount to be paid as agreed.

The difference between the two is that Huabei’s profit model mainly relies on consumer borrowing interest, while “buy now, pay later” service providers mainly “money” from merchants.

For example, as long as a merchant that Klarna cooperates with sells an item through the "buy now, pay later" method, they will have to pay the former a service fee of 5.99% of the product price and a fixed handling fee of 30 cents. . Generally, the service fee charged by Visa cards from merchants in the United States is only about 3% of the amount of the product.

In contrast, the interest rates charged by service providers to consumers are generally lower than those charged by credit cards. Most service providers do not even charge users interest on loans at all.

Obviously, this differential treatment is more beneficial to consumers.

But this is understandable. After all, it is consumers who spend money to buy things. If the cost of installment payment is higher than that of a credit card, they will certainly not choose this payment method.

Since the charges are so high, why are merchants still willing to open the "buy now, pay later" service?

Very simple, for sales.

Under the epidemic, American businesses have suffered immeasurable losses. According to the latest U.S. data for the fourth quarter of 2020, national disposable income fell by 9.5% at an annual rate. At the same time, personal consumption expenditures were only 2.5% at an annual rate. These data show that most ordinary Americans are tightening Money; and the result of tightening money on the consumer side is naturally a slump in consumption.

For merchants, when products are piled up in the store, as long as the things can be sold and the payment can be obtained in time, even if there is a little extra handling fee, it is already satisfying.

This situation is particularly obvious in e-commerce sales.

According to the findings of the research organization PayBright team, when merchants provide "buy now, pay later" services, the number of times items in buyers' "shopping carts" are abandoned is significantly reduced; e-commerce platform service organization Scalefast's The report even shows that "buy now, pay later" has increased merchants' average order value by 30%.

From the perspective of consumers, the "buy now, pay later" mechanism not only allows them to obtain goods at lower prices and in a more flexible way, but also objectively helps buyers reduce purchase costs. They can try it for a period of time after receiving the goods, and if they like it, they can continue to pay as promised; if they don't like it, they can return it. As a result, buyers’ purchasing pressure is also reduced.

Because of this, "buy now, pay later" service providers generally say that the result of this "new consumption model" is a "win-win":

On the one hand, it can help Merchants increase sales and, on the other hand, help consumers buy what they need.

There are many products that can be purchased with "buy now, pay later", from affordable clothing to daily household items, from fitness equipment to the latest fashion brands. As long as the relevant service provider and the brand have signed a contract, people can Can be consumed in this way.

For example, Klarna has partnerships with thousands of companies in 20 countries, including Uniqlo, H&M and Anthropologie. When users purchase goods in these brand offline stores, they can directly use Klarna's application (similar to Alipay or WeChat Pay) to complete the payment.

David Sykes, head of Klarna’s U.S. business, said in an interview with Reuters that the company’s “buy now, pay later” APP has seen significant growth in the number of users over the past year, “ The installment amount for the vast majority of users is between US$100 and US$200.”

According to him, the credit consumption services provided by Klarna are small, short-term, and interest-free loans. The company will also give customers a chance to defer payments without paying late fees.

Speaking of late payment fees, Klana’s late payment fees vary from state to state branch in the United States, and the current maximum is $21. In the future, the company will introduce a policy to clarify that the upper limit of late payment fees shall not exceed 25% of the price of the purchased product.

In addition to Klarna, Afterpay, Affirm, Quadpay, and Sezzle are also among the leaders of "buy now, pay later". They are all emerging financial technology startups.

More than half of Australia-based Afterpay’s U.S. customers are between the ages of 25 and 40. The company said that in the fiscal year ending June 30, 2020, its U.S. active users more than doubled compared to the same period last year, reaching 6.5 million; sales from July to September more than tripled year-on-year.

San Francisco-based Affirm is also "promising", with revenue rising 93% to $509.5 million in the fiscal year ending in June. The company allows users to complete payments from 6 weeks to 4 years, with interest rates ranging from 0 to 30%.

Unlike many companies, Affirm does not charge late payment fees. Default in repayment mainly affects the user’s credit score. Affirm said that not charging late fees is mainly out of care for users.

Seeing that emerging companies are developing so rapidly, the "old" payment application PayPal is not willing to be left alone. Since November last year, the company has widely launched the "Pay in 4" service across the United States. Customers can pay in four interest-free installments and purchase goods ranging from US$30 to US$600.

Greg Lisiewski, PayPal’s global vice president, also said that they will not report users’ defaults to credit agencies, nor will they report the specific amount of late fees paid.

Institutions more traditional than PayPal have certainly seen market changes. Companies such as Citibank and American Express have recently launched similar services. In this regard, Simpl co-founder and CEO Nityanand Sharma commented that these actions show that e-commerce is rapidly shifting from the era of instant payments to a "delayed payment" model:

Although from the data point of view, "buy now, pay later" can indeed bring a lot of benefits, but the hidden worries of this model cannot be ignored. The first one to bear the brunt is the regulatory issue.

In the United States, the above service providers have neither banking licenses nor the same industry standards. Stuart Condie, a senior observer at The Wall Street Journal, noted that Afterpay “circumvents some of the definition of a loan under U.S. law and therefore is not subject to the same regulations as banking institutions.”

Go Fund Yourself Founder Alice Tapper also said that since the government has not yet imposed restrictions on the promotion models of these companies, the latter can have a higher degree of freedom when promoting their products; they do not have to display the content on the user checkout page. Add reminder information such as "Borrowing may face debt repayment pressure, please use with caution." The result is that "even if companies have problems with their services, they can get away with it more easily than credit card issuers."

Problems with product promotion and advertising are still minor matters. The bigger potential crisis lies in the credit review mechanism.

Credit card issuers require users to provide a lot of information and pass strict credit checks. In contrast, buy now, pay later providers only require users to provide their name, address, phone number, date of birth and email address, and then decide whether to approve the user's application based on the system's algorithm. But it's not quite a credit check. In fact, as of now, no major product service provider has revealed the specific criteria that their algorithms consider.

The loose credit assessment method means that this service can more easily reach people with untapped purchasing power. Considering that currently nearly half of 20-year-olds in the United States do not have a credit card, the target group of the "buy now, pay later" service is self-evident.

Ella Rheingold, executive director of the American Consumer Protection Association, pointedly pointed out, “The BNPL agreement actually encourages young people to buy things they can’t afford. There is a huge debt. "Risks."

Rachel King of Fortune magazine also said, "If buyers don't repay on time, late fees and other penalties can add up quickly, and consumers may be disappointed. Falling into more debt in a short period of time.” Tamika Rivera, 35, an insurance agent in Massachusetts, one time, she didn’t have enough. I wanted to buy a $43 sweater with cash, so I chose the “buy now, pay later” service. But because she later failed to repay the loan on time, she ended up having to pay a $35 late fee—which was almost the same as the price of the sweater.

In addition to debt pressure, a reduction in credit rating will also affect consumers' future credit consumption. In the United States, a lower credit score will make it more difficult for users to get loans in the future and apply for credit cards. In extreme cases, some people may face housing crisis. Because landlords often check tenants’ credit scores before renting out an apartment.

Although some service providers such as Afterpay and Klarna have clearly promised that they will not report the credit status of their users to the official, this is not a good thing for users.

First, this means that compliance will not improve their credit scores; on the other hand, breach of contract will not help them escape penalties.

Ted Rossman, an industry analyst who has worked for CreditCards.com and Bankrate.com, pointed out that these financial service providers will cooperate with debt collection companies to punish defaulters. pressure. And we all know that collection agencies always have no shortage of ways to deal with people who don't pay their debts.

Faced with the above doubts, most service providers said that it was just unfounded worries.

Silvija Martincevic, chief commercial officer of Affirm, claimed: “We only approve borrowers who are able to repay as company users. Our review method uses machine learning It’s calculated based on the results.”

Australia’s Afterpay said that 95% of its global transactions were repaid on time, and late payment fees accounted for less than 14% of the company’s total revenue.

However, according to a study by credit Karma, nearly 40% of U.S. consumers who use the "buy now, pay later" strategy have missed a payment more than once, and 72% of them have experienced a decline in their credit scores. .

Ganesh Bharadhwaj, general manager of credit card business at credit Karma, bluntly said that the proportion of consumers not paying is very high and not as low as you think. ”

Based on the current regulatory loopholes and potential risks, regulators in the UK and Australia are reviewing or tightening rules for the industry. Some regulators stated that BNPL services that are classified as financial technology companies provide Businesses should be subject to strict regulations like banks.

The United States may also take relevant countermeasures. Some experts predict that the industry will be subject to more scrutiny during the Biden administration. BTIG Research financial analyst Mark Parr. Mark Palmer believes that the Consumer Financial Protection Bureau will play a more important role in the future.

The U.S. financial market has always adhered to the principle of "buyer beware." In other words, lenders are responsible for their own borrowing behavior, but Sarah Newcomb, director of behavioral science at financial research firm Morningstar, pointed out that this principle is facing unprecedented challenges because "when When predatory financial services such as 'buy now, pay later' appear, most people are simply unable to resist consumption impulses and desires. ”

Indeed, the separation of purchasing behavior and consumption behavior is indeed easier to stimulate users’ desire to consume. As Amanda Mull, a staff writer for The Atlantic Monthly, said: