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Speaker 1: From Bloomberg News and iHeartRadio. It's the big take. I'm

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Speaker 1: wes Kasova today. Buy now, Pay Later is everywhere? Is

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Speaker 1: that a good thing?

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Speaker 2: Buy No Pay Leader isn't just financing gen Z's online

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Speaker 2: shopping habits. It's helping families put food on the table.

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Speaker 2: US consumers are increasingly using the installment loans to pay

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Speaker 2: for everyday items, including groceries. That's highlighting the financial pain

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Speaker 2: brought from the worst inflation outbreak in four decades. Now

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Speaker 2: almost half of Americans have used buy No Pay Leader apps,

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Speaker 2: and of those, about one in five rely on them

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Speaker 2: to buy groceries, and some twenty seven percent are using

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Speaker 2: the loans as a bridge to their next paycheck.

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Speaker 1: Whether you're pushing a shopping cart through a store or

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Speaker 1: just clicking one online. When you reach the checkout, you

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Speaker 1: might be invited to sign up for one of these

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Speaker 1: ubiquitous buy now pay later services. They let you take

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Speaker 1: your stuff and pay it off over time without interest.

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Speaker 1: It's fast and convenient, and you get what you want

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Speaker 1: right away, even if you can't quite afford it just yet.

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Speaker 1: And that's where things sometimes get complicated. Reporters Augustva, Sariva

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Speaker 1: and Paulina Caccero. You heard her at the top of

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Speaker 1: the show talking to Bloomberg Quicktech. They looked into these services,

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Speaker 1: which millions of Americans use. They found a lot of

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Speaker 1: people who love Buy now, Pay Later's easy access to

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Speaker 1: credit without all the scrutiny of a credit card. But

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Speaker 1: for those who fall behind on the payments, it can

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Speaker 1: wind up costing more than they bargain for. Well, and

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Speaker 1: we've had laywaight plans and deferred payments for a long time,

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Speaker 1: but by now, pay later is kind of like a

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Speaker 1: different sort a way of deferring your payments.

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Speaker 2: Buy now, Pay Later is kind of like a layaway

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Speaker 2: plan of the early oughts, but with an instant gratification twist.

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Speaker 3: You know.

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Speaker 2: The short term loans surged in popularity during the pandemic

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Speaker 2: thanks to consumers who are flushed with extra stimulus cash

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Speaker 2: and limited to online shopping. So five major buy now

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Speaker 2: pay leader companies in the US originated one hundred and

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Speaker 2: eighty million loans totally twenty four point two billion in

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Speaker 2: twenty twenty one. That's a your tenfold increase from twenty nineteen,

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Speaker 2: according to the Consumer Financial Protection Bureau oh GUSSA.

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Speaker 1: Where are some of the places that we're seeing this.

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Speaker 1: It seems like every time I try to buy something

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Speaker 1: in a store or online, they're offering to have me

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Speaker 1: not pay for it the day I'm buying it.

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Speaker 4: Yeah, they're pretty much everywhere these days. A year ago,

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Speaker 4: you could use it to buy let's say, electronics, clothes.

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Speaker 4: Now you can use it to buy groceries. You can

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Speaker 4: use it to buy even guns, So it's pretty much everything.

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Speaker 4: And one thing that we noticed and now we're reporting

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Speaker 4: is that whereas some grocery stores do have their on

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Speaker 4: buy now pay later plans, they have partnerships with specific

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Speaker 4: buy now, pay later companies. At the same time, you're

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Speaker 4: also seeing apps like insta Card where you can choose

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Speaker 4: pretty much any grocery store that lacks you pay with

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Speaker 4: buy now pay later. So at those point of possibilities

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Speaker 4: are pretty much endless.

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Speaker 1: Paulina, for people who haven't actually use this service, can

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Speaker 1: you explain how it works?

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Speaker 2: So by now pay later options are basically short term

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Speaker 2: financing options that lets consumers make a purchase and take

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Speaker 2: it home now for a small payment and paying for

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Speaker 2: it in full. Leater customers pay back for the item

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Speaker 2: in several installments over a set period of time, usually

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Speaker 2: every two weeks or once a month. Many of them

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Speaker 2: promise little to no fees, no interests, and a pretty

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Speaker 2: instant or quick credit approval.

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Speaker 1: What are some of the companies that are doing this?

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Speaker 2: So some of the big companies that are financing these

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Speaker 2: short term loans, You've probably heard of them all over

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Speaker 2: Instagram or TikTok. There's after Pay, there's Klarna, there's a firm,

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Speaker 2: there's zippay, and even credit cards are getting into the

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Speaker 2: buy now, pay later business as well and offering the

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Speaker 2: installment loan plans via credit cards.

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Speaker 4: Yeah, and beyond some of the traditional by now, pay

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Speaker 4: later companies. Last month, for example, we saw Apple and

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Speaker 4: the buy now, Pay later business.

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Speaker 5: Apple has also developed its own credit check technology and

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Speaker 5: its own lending mechanism where they're going to scrutinize past

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Speaker 5: customer purchase history. Whatever you've spent at an Apple retail store,

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Speaker 5: online store, which movies you've bought, if you've paid off

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Speaker 5: your subscriptions, and maybe your Apple card installments, your overall

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Speaker 5: credit score. Right, they'll use that data to determine how

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Speaker 5: much of a loan you'll get for buy now, Pay later.

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Speaker 5: That loan range is actually quite small compared to what

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Speaker 5: you're getting from other providers, but they're no interest right.

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Speaker 5: It's four payments over six weeks, and the loan amounts

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Speaker 5: are between fifty dollars and one thousand dollars, and if

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Speaker 5: you pay that off, you can always get more money

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Speaker 5: for a future buy now Pay Later transaction through Apple Pay.

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Speaker 1: That's Chief Technology correspondent Mark German, who was speaking on

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Speaker 1: Bloomberg Television and AGUSA. You report that Apple isn't the

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Speaker 1: only big company eyeing buy now pay.

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Speaker 4: Later Earlier this year, we have some news about well

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Speaker 4: more possibly getting involved in that too, so we're seeing

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Speaker 4: more and more bigger companies do that.

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Speaker 2: Even though buy now pay Leader products largely advertise themselves

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Speaker 2: as being risk free or interest free, that's only true

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Speaker 2: if you follow all of the rules. Once you start

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Speaker 2: falling behind on payments, you can actually start to accrue

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Speaker 2: late fees or interest, you know, sometimes at interest rates

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Speaker 2: that rival out of credit cards. One of the hidden

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Speaker 2: fees that a lot of consumer advocates talk about in

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Speaker 2: the buy now pay Leader space is when people use

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Speaker 2: their credit card to pay off their buy now Pay

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Speaker 2: Leader loans. So people are taking loans out on loans

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Speaker 2: and you can imagine how you know that can start

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Speaker 2: to really pile up. So how it works is these

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Speaker 2: buy now pay Leader services. Retailers pay fees to be

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Speaker 2: able to offer buy now pay Leader options to their customers,

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Speaker 2: and that's where most of these providers are actually making

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Speaker 2: their money. It's not from consumers, it's from retailers. And

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Speaker 2: part of the value proposition is that most buy now

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Speaker 2: Pay later users tend to buy more than they would

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Speaker 2: without these services. Providers are telling retailers that a customer's

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Speaker 2: average order value is anywhere from twenty percent to eighty

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Speaker 2: five percent higher with their services.

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Speaker 4: One of the things that we know when it comes

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Speaker 4: to the people who are using these services is that

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Speaker 4: seventy percent of the buy now Pay later users actually

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Speaker 4: have credit card data already, and not only that, but

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Speaker 4: on average they have twelve thousand dollars less in savings

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Speaker 4: then non buy now Pay later users. When we think

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Speaker 4: about buy now, Pay Later, we think about people using

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Speaker 4: it to buy stuff they want, things like electronics, things

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Speaker 4: like clothes, But for a lot of people, they're actually

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Speaker 4: using this as a loss resort to buy groceries, to

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Speaker 4: buy essentials. We're seeing people using it to buy school supplies.

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Speaker 4: For example, we actually saw to the study from Landing Tree.

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Speaker 4: The found that half of Americans have been using by

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Speaker 4: Now Pay Later, and of all of those by Now

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Speaker 4: Pay Later users, twenty percent of them, so pretty much

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Speaker 4: one in five is using it to buy groceries. And

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Speaker 4: not only that, twenty five percent of buy Now Pay

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Speaker 4: Later users are using it as a bridge to their

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Speaker 4: next paycheck. So it's either that or nothing in many cases.

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Speaker 4: And on top of that, when we look at demographics,

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Speaker 4: it's usually minorities that use these services. It tends to

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Speaker 4: be Hispanic and black users. We know, it tends to

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Speaker 4: be young people and also women.

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Speaker 1: Paulina, you mentioned earlier about how this became especially popular

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Speaker 1: in the pandemic, and now we have rising inflation, people's

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Speaker 1: paychecks aren't going as far. How much does that play

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Speaker 1: into it.

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Speaker 2: Buy not pay later services became widespread in the pandemic,

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Speaker 2: but as credit card interest rates hit around twenty percent,

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Speaker 2: people are looking for other ways of financing, you know,

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Speaker 2: everyday needs. We talk to some users who did that,

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Speaker 2: and actually the Federal Reserve found that, you know, around

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Speaker 2: sixty percent of people with an income under fifty thousand

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Speaker 2: tended to use by now pay later. One of the

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Speaker 2: reasons that people use by now pay Leader is to

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Speaker 2: avoid using their credit card. So as people start using

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Speaker 2: their credit cards to you know, help bridge the paycheck

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Speaker 2: and seeing those balances rise with the promise of no

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Speaker 2: interest by now pay Leader services are becoming a more

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Speaker 2: attractive option.

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Speaker 1: WILS.

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Speaker 4: Just to give you an idea of how much inflation

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Speaker 4: has impacted some of these families, Grocery prices are actually

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Speaker 4: up eight point four percent from last year, and that

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Speaker 4: compared to the overall inflation in the US is even higher.

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Speaker 4: So for a lot of families it's becoming harder and

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Speaker 4: harder to make ends meet. The Department of Agriculture actually

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Speaker 4: estimates that a family of four they need to span

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Speaker 4: one thousand dollars per month to get a nutritia's diet

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Speaker 4: and that's almost twice how much he used to cost

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Speaker 4: only three years before. So things are going up very

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Speaker 4: fast and before a lot of families they don't have

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Speaker 4: a lot of options out there to get them through

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Speaker 4: the end of the month.

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Speaker 1: And what do the companies say about people falling behind

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Speaker 1: on payments, About whether or not these encourage people to

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Speaker 1: spend money that they don't have.

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Speaker 4: We actually spoke to Chlorina, one of the major buy

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Speaker 4: now pay later firms out there, and what they told

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Speaker 4: us is that they see their product as something that

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Speaker 4: helps people get through the end of the month, so

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Speaker 4: for them, buye now pay later is another option out there.

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Speaker 2: Overall, buy now pay later can be a really useful

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Speaker 2: financial tool for people who know how to use it properly.

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Speaker 2: But the risk that we see comes from the lack

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Speaker 2: of regulation at the federal and state level. Because of

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Speaker 2: the way that buy now pay later products work, they

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Speaker 2: don't fall under the Truth and Lending Act, so we

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Speaker 2: don't have the same consumer protections in place as we

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Speaker 2: would for people who are taking out a loan with

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Speaker 2: a credit card or other credit providers.

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Speaker 1: After the break the psychology that makes these buy now

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Speaker 1: services so appealing.

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Speaker 6: I use after pay for flights, furniture, vacations.

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Speaker 3: Would you ever use it on groceries?

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Speaker 6: Yeah, for smaller things like that, I'll go ahead and

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Speaker 6: at least have the funds, And if I want to

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Speaker 6: go ahead and do it, it's just an easier kind

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Speaker 6: of mind frame. Credit cards will go ahead and run

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Speaker 6: your credit destroy it. You just don't want to get

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Speaker 6: yourself to a point where credit cards where you end

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Speaker 6: up being in collections or being in a debt situation

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Speaker 6: where your credit score is affected and you won't be

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Speaker 6: able to get any cards or any approvals if you

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Speaker 6: need it a loan. Who knows you might want to

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Speaker 6: go ahead and renovate your apartment.

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Speaker 3: I use it all the time.

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Speaker 1: Can I ask what you use it on?

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Speaker 7: Purchasing just outfits and a lot of merchants, attire, gym stuff, Target,

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Speaker 7: all the main stores, even blooming those takes it. One

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Speaker 7: of the kids will ask you for something and you

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Speaker 7: put it in your budget and you're like, oh, then

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Speaker 7: you do it, and you know, you break it down

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Speaker 7: the four pay it makes it makes life a little

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Speaker 7: bit easier.

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Speaker 3: I guess.

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Speaker 1: So there seems to be a lot of consumer psychology

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Speaker 1: behind the buy now, pay it later, where they know

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Speaker 1: how people behave Yes.

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Speaker 4: One of the researchers I spoke to for the story

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Speaker 4: Professor Marco DiMaggio at Harvard Business School. He's done a

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Speaker 4: lot of research on some of the reasons that lead

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Speaker 4: people to use buy now, Pay later. Something that seemed

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Speaker 4: really interesting that sort of came across from what he

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Speaker 4: was telling me is that people often seem to not

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Speaker 4: have any object permanence when it comes to their finances.

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Speaker 4: For example, you're buying a pair of sneakers, right, and

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Speaker 4: you're using buy now, Paid later pain for installments, So

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Speaker 4: in your mind you're only spending fifty dollars to date, right,

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Speaker 4: you totally forget about the one hundred and fifty that

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Speaker 4: you're going to have to pay going forward. And for

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Speaker 4: those people, that means that even if you have those

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Speaker 4: two hundred dollars in your bank account, in your mind,

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Speaker 4: you still have one hundred and fifty to span. So

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Speaker 4: that means you might leave the store today and tomorrow

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Speaker 4: you decide to span one hundred and fifty and a shirt,

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Speaker 4: use buy now, Pay Later, and in your mind you

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Speaker 4: just span one hundred, even though you've already spanned three

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Speaker 4: hundred dollars total. Though, there is a lot of psychology

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Speaker 4: when it comes to that, and I feel like the

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Speaker 4: danger when it comes to groceries is that this is

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Speaker 4: a recurrent purchase. If I use buy now, Pay Later

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Speaker 4: to buy eggs and meat this week, I'm probably going

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Speaker 4: to have to buy those things again next week, right,

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Speaker 4: And when I realize I might still be paying for

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Speaker 4: a carton of bags I bought three months ago.

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Speaker 2: You know, I do think that buy now, pay later

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Speaker 2: is a different way of paying back alone than most

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Speaker 2: consumers are used to. When the financial burden of your

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Speaker 2: purchase isn't hitting your bank accou out all at once,

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Speaker 2: people think that they can afford more than they really can.

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Speaker 2: We can compare it to when credit cards first came out.

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Speaker 2: Studies found that credit card users were likely to spend

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Speaker 2: more than someone paying with cash, and buy no pay

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Speaker 2: leader feels like another new financial product that people are

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Speaker 2: not used to managing or handling.

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Speaker 1: You spoke to some people who have used this, and

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Speaker 1: some people like it, and other people felt like it

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Speaker 1: became a financial trap. What do they tell you?

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Speaker 7: So?

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Speaker 2: One of the things that by Now Pay Later users

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Speaker 2: told us is that it's easily accessible everywhere, and that

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Speaker 2: keeping up with the payments can actually be pretty confusing.

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Speaker 2: You know, while paying something in an installment loan seems

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Speaker 2: pretty simple enough, so imagine if you're making a number

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Speaker 2: of purchases on different days of the week, with more

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Speaker 2: than a dozen services all offering different terms and conditions.

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Speaker 2: Some with installments do every two weeks and another once

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Speaker 2: a month. I don't think it's that hard to see

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Speaker 2: how consumers can fall behind on payments and how those

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Speaker 2: payment schedules can be pretty confusing.

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Speaker 1: I suppose somebody listening to this could say, well, if

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Speaker 1: you're taking out that many buy now pay Later loans,

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Speaker 1: maybe you shouldn't be doing that. That there's a certain

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Speaker 1: amount of personal responsibility here.

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Speaker 2: Yeah. I think the buyer beware is advice that every

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Speaker 2: financial advisor will give. But I think what makes buy

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Speaker 2: now pay Leader different is they're not covered by traditional

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Speaker 2: consumer protection laws. I mentioned the Truth and Lending Act earlier,

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Speaker 2: and it's a landmark law that requires extensive disclosures for

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Speaker 2: unsecured consumer loans, but that only applies to loans that

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Speaker 2: require five or more payments, meaning that buy now pay

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Speaker 2: Leader services often fall in this gray area because they

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Speaker 2: are limited to four payments. Consumers are at risk because

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Speaker 2: they don't have the same underwriting standards, and a lot

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Speaker 2: of these Bye now pay Leader services don't actually report

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Speaker 2: to credit reporting bureaus. If you apply to a credit card,

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Speaker 2: they will probably know if you have a line of

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Speaker 2: credit out with a number of other credit providers, but

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Speaker 2: with buy they Now pay Later because they don't report.

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Speaker 2: You don't know if someone is using a firm and

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Speaker 2: Klarna and after pay, and actually, the Consumer Financial Protection

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Speaker 2: Bureau found that that's where consumers fall at risk. Most

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Speaker 2: buy now Pay Later users aren't just using one service,

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Speaker 2: They're using multiple on top of each other, called loan stacking.

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Speaker 1: Pauliniam, do we know how many people who use the

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Speaker 1: buy now Pay later services are paying it off in

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Speaker 1: the time allotted and how many of them fall behind

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Speaker 1: and wind up having to pay fees?

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Speaker 2: Roughly eleven percent of borers paid at least one late

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Speaker 2: fee in twenty twenty one, an increase from the prior year,

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Speaker 2: and a growing percentage of loans industry is making are

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Speaker 2: being charged off. That means loans are considered so delinquent

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Speaker 2: that they're likely uncollectible.

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Speaker 1: When we come back, we hear from a single mother

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Speaker 1: who reluctantly uses buy now, Pay Later services to help

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Speaker 1: make ends meet. August, So, you said how people sometimes

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Speaker 1: find themselves needing by now pay later for essentials. What

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Speaker 1: did people you spoke to tell you about that?

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Speaker 4: We got very different perspectives. At the same time that

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Speaker 4: we saw more people who see it as an alternative

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Speaker 4: to credit cards. We also saw some people who are

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Speaker 4: using buy now Pay Later as a lost resort. So

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Speaker 4: as an example, someone we spoke to is Face Smith

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Speaker 4: at the Single Motel in Alabama.

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Speaker 2: Face Smith is just trying to make ends meet. Around

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Speaker 2: sometime last year, she got a notification that buy now

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Speaker 2: Pay Leader services were available at a major retailer, and

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Speaker 2: now she you know, maxes out credit on a number

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Speaker 2: of buy now Pay Later services. She compared getting groceries

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Speaker 2: to putting together a puzzle figuring out where she has

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Speaker 2: money to pay for groceries and using a mix of

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Speaker 2: those to make sure that she has enough nutritious food

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Speaker 2: for her daughter.

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Speaker 1: Our producer Moberro spoke to Faith Smith and here's what

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Speaker 1: she had to say.

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Speaker 3: It really started the whole struggle with buying groceries when

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Speaker 3: the pandemic hit. Lost my job of ten years and

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Speaker 3: I took kind of like a placeholder job that paid

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Speaker 3: substantially less than what I was making before, and it

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Speaker 3: got difficult to pay bills, rent, utilities, you know, all

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Speaker 3: those necessities that you need. And it was getting to

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Speaker 3: the point where I was struggling to get groceries on

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Speaker 3: the table. I was skipping meals, making sure my daughter

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Speaker 3: was able to eat, you know, just do what I

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Speaker 3: needed to do to cut corners when it came to

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Speaker 3: getting food on the table, and it was a struggle

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Speaker 3: for a while, you know, and I was looking for

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Speaker 3: some other weight out of it. I believe it was

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Speaker 3: through a mobile app notification. It was just like, oh,

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Speaker 3: new stores have been added that you can use. So

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Speaker 3: I started looking and there were like a few grocery

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Speaker 3: stores on after pay Clarna PayPal, and I kind of

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Speaker 3: started looking at the different companies that use that, the

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Speaker 3: grocery stores that accepted it, and I utilize that to

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Speaker 3: you know, get lots of like fresh fruits and vegetables,

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Speaker 3: nothing frivolous, just to make basic, decent, well rounded meals

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Speaker 3: for my daughter and myself. It's been a lifesaver, but

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Speaker 3: still a headache because you still have those reminders every

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Speaker 3: two weeks. It's like, oh, don't forget, you're gonna have

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Speaker 3: this chunk of money automatically taken out of your bank account,

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Speaker 3: and then you check your bank account, holding your breath

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Speaker 3: hoping it's going to go through. I mean, it's easy

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Speaker 3: to get yourself tied up into possibly using too many

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Speaker 3: of them at the same time. So you have like

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Speaker 3: all those real stacked on top of each other. But

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Speaker 3: I haven't really had too many issues with it myself.

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Speaker 3: I try not to utilize it if I don't have to,

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Speaker 3: but sadly I have to use it more than I

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Speaker 3: would like to have to use it, and it's like, okay,

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Speaker 3: I can't even go buy like a carton of eggs

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Speaker 3: without having to split it up into payments. It's exhausting sometimes.

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Speaker 1: And what's your takeaway from that after you hear that story?

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Speaker 2: You know, I think it's really tough to hear for

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Speaker 2: all of the larger conversations about whether or not we're

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Speaker 2: in a recession or not, Inflation is still really high,

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Speaker 2: and I think sometimes we forget that even those wages

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Speaker 2: are rising at faster pace and inflation for some people,

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Speaker 2: people are still struggling and working to make ends meet,

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Speaker 2: and they're running out of places to turn.

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Speaker 1: Augusta Paulina, thanks so much for coming on the show.

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Speaker 1: Thank you, thanks for listening to us here at the

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Speaker 1: Big Take. It's a daily podcast from Bloomberg and iHeartRadio.

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Speaker 1: or wherever you listen and we'd love to hear from you.

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Speaker 1: Email us questions or comments to Big Take at bloomberg

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Speaker 1: dot net. The supervising producer of the Big Take is

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Speaker 1: Vicky Bergalina. Our senior producer is Atherine Fink. Our producers

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Speaker 1: are mow Berrow and Michael Falero. Kilde Garcia is our engineer.

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Speaker 1: Our original music was composed by Leo Sidrin. I'm West Kasova.

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Speaker 1: We'll be back tomorrow with another big tag.