Speaker 1: From Bloomberg News and iHeartRadio. It's the big take. I'm
Speaker 1: wes Kasova today. Buy now, Pay Later is everywhere? Is
Speaker 1: that a good thing?
Speaker 2: Buy No Pay Leader isn't just financing gen Z's online
Speaker 2: shopping habits. It's helping families put food on the table.
Speaker 2: US consumers are increasingly using the installment loans to pay
Speaker 2: for everyday items, including groceries. That's highlighting the financial pain
Speaker 2: brought from the worst inflation outbreak in four decades. Now
Speaker 2: almost half of Americans have used buy No Pay Leader apps,
Speaker 2: and of those, about one in five rely on them
Speaker 2: to buy groceries, and some twenty seven percent are using
Speaker 2: the loans as a bridge to their next paycheck.
Speaker 1: Whether you're pushing a shopping cart through a store or
Speaker 1: just clicking one online. When you reach the checkout, you
Speaker 1: might be invited to sign up for one of these
Speaker 1: ubiquitous buy now pay later services. They let you take
Speaker 1: your stuff and pay it off over time without interest.
Speaker 1: It's fast and convenient, and you get what you want
Speaker 1: right away, even if you can't quite afford it just yet.
Speaker 1: And that's where things sometimes get complicated. Reporters Augustva, Sariva
Speaker 1: and Paulina Caccero. You heard her at the top of
Speaker 1: the show talking to Bloomberg Quicktech. They looked into these services,
Speaker 1: which millions of Americans use. They found a lot of
Speaker 1: people who love Buy now, Pay Later's easy access to
Speaker 1: credit without all the scrutiny of a credit card. But
Speaker 1: for those who fall behind on the payments, it can
Speaker 1: wind up costing more than they bargain for. Well, and
Speaker 1: we've had laywaight plans and deferred payments for a long time,
Speaker 1: but by now, pay later is kind of like a
Speaker 1: different sort a way of deferring your payments.
Speaker 2: Buy now, Pay Later is kind of like a layaway
Speaker 2: plan of the early oughts, but with an instant gratification twist.
Speaker 3: You know.
Speaker 2: The short term loans surged in popularity during the pandemic
Speaker 2: thanks to consumers who are flushed with extra stimulus cash
Speaker 2: and limited to online shopping. So five major buy now
Speaker 2: pay leader companies in the US originated one hundred and
Speaker 2: eighty million loans totally twenty four point two billion in
Speaker 2: twenty twenty one. That's a your tenfold increase from twenty nineteen,
Speaker 2: according to the Consumer Financial Protection Bureau oh GUSSA.
Speaker 1: Where are some of the places that we're seeing this.
Speaker 1: It seems like every time I try to buy something
Speaker 1: in a store or online, they're offering to have me
Speaker 1: not pay for it the day I'm buying it.
Speaker 4: Yeah, they're pretty much everywhere these days. A year ago,
Speaker 4: you could use it to buy let's say, electronics, clothes.
Speaker 4: Now you can use it to buy groceries. You can
Speaker 4: use it to buy even guns, So it's pretty much everything.
Speaker 4: And one thing that we noticed and now we're reporting
Speaker 4: is that whereas some grocery stores do have their on
Speaker 4: buy now pay later plans, they have partnerships with specific
Speaker 4: buy now, pay later companies. At the same time, you're
Speaker 4: also seeing apps like insta Card where you can choose
Speaker 4: pretty much any grocery store that lacks you pay with
Speaker 4: buy now pay later. So at those point of possibilities
Speaker 4: are pretty much endless.
Speaker 1: Paulina, for people who haven't actually use this service, can
Speaker 1: you explain how it works?
Speaker 2: So by now pay later options are basically short term
Speaker 2: financing options that lets consumers make a purchase and take
Speaker 2: it home now for a small payment and paying for
Speaker 2: it in full. Leater customers pay back for the item
Speaker 2: in several installments over a set period of time, usually
Speaker 2: every two weeks or once a month. Many of them
Speaker 2: promise little to no fees, no interests, and a pretty
Speaker 2: instant or quick credit approval.
Speaker 1: What are some of the companies that are doing this?
Speaker 2: So some of the big companies that are financing these
Speaker 2: short term loans, You've probably heard of them all over
Speaker 2: Instagram or TikTok. There's after Pay, there's Klarna, there's a firm,
Speaker 2: there's zippay, and even credit cards are getting into the
Speaker 2: buy now, pay later business as well and offering the
Speaker 2: installment loan plans via credit cards.
Speaker 4: Yeah, and beyond some of the traditional by now, pay
Speaker 4: later companies. Last month, for example, we saw Apple and
Speaker 4: the buy now, Pay later business.
Speaker 5: Apple has also developed its own credit check technology and
Speaker 5: its own lending mechanism where they're going to scrutinize past
Speaker 5: customer purchase history. Whatever you've spent at an Apple retail store,
Speaker 5: online store, which movies you've bought, if you've paid off
Speaker 5: your subscriptions, and maybe your Apple card installments, your overall
Speaker 5: credit score. Right, they'll use that data to determine how
Speaker 5: much of a loan you'll get for buy now, Pay later.
Speaker 5: That loan range is actually quite small compared to what
Speaker 5: you're getting from other providers, but they're no interest right.
Speaker 5: It's four payments over six weeks, and the loan amounts
Speaker 5: are between fifty dollars and one thousand dollars, and if
Speaker 5: you pay that off, you can always get more money
Speaker 5: for a future buy now Pay Later transaction through Apple Pay.
Speaker 1: That's Chief Technology correspondent Mark German, who was speaking on
Speaker 1: Bloomberg Television and AGUSA. You report that Apple isn't the
Speaker 1: only big company eyeing buy now pay.
Speaker 4: Later Earlier this year, we have some news about well
Speaker 4: more possibly getting involved in that too, so we're seeing
Speaker 4: more and more bigger companies do that.
Speaker 2: Even though buy now pay Leader products largely advertise themselves
Speaker 2: as being risk free or interest free, that's only true
Speaker 2: if you follow all of the rules. Once you start
Speaker 2: falling behind on payments, you can actually start to accrue
Speaker 2: late fees or interest, you know, sometimes at interest rates
Speaker 2: that rival out of credit cards. One of the hidden
Speaker 2: fees that a lot of consumer advocates talk about in
Speaker 2: the buy now pay Leader space is when people use
Speaker 2: their credit card to pay off their buy now Pay
Speaker 2: Leader loans. So people are taking loans out on loans
Speaker 2: and you can imagine how you know that can start
Speaker 2: to really pile up. So how it works is these
Speaker 2: buy now pay Leader services. Retailers pay fees to be
Speaker 2: able to offer buy now pay Leader options to their customers,
Speaker 2: and that's where most of these providers are actually making
Speaker 2: their money. It's not from consumers, it's from retailers. And
Speaker 2: part of the value proposition is that most buy now
Speaker 2: Pay later users tend to buy more than they would
Speaker 2: without these services. Providers are telling retailers that a customer's
Speaker 2: average order value is anywhere from twenty percent to eighty
Speaker 2: five percent higher with their services.
Speaker 4: One of the things that we know when it comes
Speaker 4: to the people who are using these services is that
Speaker 4: seventy percent of the buy now Pay later users actually
Speaker 4: have credit card data already, and not only that, but
Speaker 4: on average they have twelve thousand dollars less in savings
Speaker 4: then non buy now Pay later users. When we think
Speaker 4: about buy now, Pay Later, we think about people using
Speaker 4: it to buy stuff they want, things like electronics, things
Speaker 4: like clothes, But for a lot of people, they're actually
Speaker 4: using this as a loss resort to buy groceries, to
Speaker 4: buy essentials. We're seeing people using it to buy school supplies.
Speaker 4: For example, we actually saw to the study from Landing Tree.
Speaker 4: The found that half of Americans have been using by
Speaker 4: Now Pay Later, and of all of those by Now
Speaker 4: Pay Later users, twenty percent of them, so pretty much
Speaker 4: one in five is using it to buy groceries. And
Speaker 4: not only that, twenty five percent of buy Now Pay
Speaker 4: Later users are using it as a bridge to their
Speaker 4: next paycheck. So it's either that or nothing in many cases.
Speaker 4: And on top of that, when we look at demographics,
Speaker 4: it's usually minorities that use these services. It tends to
Speaker 4: be Hispanic and black users. We know, it tends to
Speaker 4: be young people and also women.
Speaker 1: Paulina, you mentioned earlier about how this became especially popular
Speaker 1: in the pandemic, and now we have rising inflation, people's
Speaker 1: paychecks aren't going as far. How much does that play
Speaker 1: into it.
Speaker 2: Buy not pay later services became widespread in the pandemic,
Speaker 2: but as credit card interest rates hit around twenty percent,
Speaker 2: people are looking for other ways of financing, you know,
Speaker 2: everyday needs. We talk to some users who did that,
Speaker 2: and actually the Federal Reserve found that, you know, around
Speaker 2: sixty percent of people with an income under fifty thousand
Speaker 2: tended to use by now pay later. One of the
Speaker 2: reasons that people use by now pay Leader is to
Speaker 2: avoid using their credit card. So as people start using
Speaker 2: their credit cards to you know, help bridge the paycheck
Speaker 2: and seeing those balances rise with the promise of no
Speaker 2: interest by now pay Leader services are becoming a more
Speaker 2: attractive option.
Speaker 1: WILS.
Speaker 4: Just to give you an idea of how much inflation
Speaker 4: has impacted some of these families, Grocery prices are actually
Speaker 4: up eight point four percent from last year, and that
Speaker 4: compared to the overall inflation in the US is even higher.
Speaker 4: So for a lot of families it's becoming harder and
Speaker 4: harder to make ends meet. The Department of Agriculture actually
Speaker 4: estimates that a family of four they need to span
Speaker 4: one thousand dollars per month to get a nutritia's diet
Speaker 4: and that's almost twice how much he used to cost
Speaker 4: only three years before. So things are going up very
Speaker 4: fast and before a lot of families they don't have
Speaker 4: a lot of options out there to get them through
Speaker 4: the end of the month.
Speaker 1: And what do the companies say about people falling behind
Speaker 1: on payments, About whether or not these encourage people to
Speaker 1: spend money that they don't have.
Speaker 4: We actually spoke to Chlorina, one of the major buy
Speaker 4: now pay later firms out there, and what they told
Speaker 4: us is that they see their product as something that
Speaker 4: helps people get through the end of the month, so
Speaker 4: for them, buye now pay later is another option out there.
Speaker 2: Overall, buy now pay later can be a really useful
Speaker 2: financial tool for people who know how to use it properly.
Speaker 2: But the risk that we see comes from the lack
Speaker 2: of regulation at the federal and state level. Because of
Speaker 2: the way that buy now pay later products work, they
Speaker 2: don't fall under the Truth and Lending Act, so we
Speaker 2: don't have the same consumer protections in place as we
Speaker 2: would for people who are taking out a loan with
Speaker 2: a credit card or other credit providers.
Speaker 1: After the break the psychology that makes these buy now
Speaker 1: services so appealing.
Speaker 6: I use after pay for flights, furniture, vacations.
Speaker 3: Would you ever use it on groceries?
Speaker 6: Yeah, for smaller things like that, I'll go ahead and
Speaker 6: at least have the funds, And if I want to
Speaker 6: go ahead and do it, it's just an easier kind
Speaker 6: of mind frame. Credit cards will go ahead and run
Speaker 6: your credit destroy it. You just don't want to get
Speaker 6: yourself to a point where credit cards where you end
Speaker 6: up being in collections or being in a debt situation
Speaker 6: where your credit score is affected and you won't be
Speaker 6: able to get any cards or any approvals if you
Speaker 6: need it a loan. Who knows you might want to
Speaker 6: go ahead and renovate your apartment.
Speaker 3: I use it all the time.
Speaker 1: Can I ask what you use it on?
Speaker 7: Purchasing just outfits and a lot of merchants, attire, gym stuff, Target,
Speaker 7: all the main stores, even blooming those takes it. One
Speaker 7: of the kids will ask you for something and you
Speaker 7: put it in your budget and you're like, oh, then
Speaker 7: you do it, and you know, you break it down
Speaker 7: the four pay it makes it makes life a little
Speaker 7: bit easier.
Speaker 3: I guess.
Speaker 1: So there seems to be a lot of consumer psychology
Speaker 1: behind the buy now, pay it later, where they know
Speaker 1: how people behave Yes.
Speaker 4: One of the researchers I spoke to for the story
Speaker 4: Professor Marco DiMaggio at Harvard Business School. He's done a
Speaker 4: lot of research on some of the reasons that lead
Speaker 4: people to use buy now, Pay later. Something that seemed
Speaker 4: really interesting that sort of came across from what he
Speaker 4: was telling me is that people often seem to not
Speaker 4: have any object permanence when it comes to their finances.
Speaker 4: For example, you're buying a pair of sneakers, right, and
Speaker 4: you're using buy now, Paid later pain for installments, So
Speaker 4: in your mind you're only spending fifty dollars to date, right,
Speaker 4: you totally forget about the one hundred and fifty that
Speaker 4: you're going to have to pay going forward. And for
Speaker 4: those people, that means that even if you have those
Speaker 4: two hundred dollars in your bank account, in your mind,
Speaker 4: you still have one hundred and fifty to span. So
Speaker 4: that means you might leave the store today and tomorrow
Speaker 4: you decide to span one hundred and fifty and a shirt,
Speaker 4: use buy now, Pay Later, and in your mind you
Speaker 4: just span one hundred, even though you've already spanned three
Speaker 4: hundred dollars total. Though, there is a lot of psychology
Speaker 4: when it comes to that, and I feel like the
Speaker 4: danger when it comes to groceries is that this is
Speaker 4: a recurrent purchase. If I use buy now, Pay Later
Speaker 4: to buy eggs and meat this week, I'm probably going
Speaker 4: to have to buy those things again next week, right,
Speaker 4: And when I realize I might still be paying for
Speaker 4: a carton of bags I bought three months ago.
Speaker 2: You know, I do think that buy now, pay later
Speaker 2: is a different way of paying back alone than most
Speaker 2: consumers are used to. When the financial burden of your
Speaker 2: purchase isn't hitting your bank accou out all at once,
Speaker 2: people think that they can afford more than they really can.
Speaker 2: We can compare it to when credit cards first came out.
Speaker 2: Studies found that credit card users were likely to spend
Speaker 2: more than someone paying with cash, and buy no pay
Speaker 2: leader feels like another new financial product that people are
Speaker 2: not used to managing or handling.
Speaker 1: You spoke to some people who have used this, and
Speaker 1: some people like it, and other people felt like it
Speaker 1: became a financial trap. What do they tell you?
Speaker 7: So?
Speaker 2: One of the things that by Now Pay Later users
Speaker 2: told us is that it's easily accessible everywhere, and that
Speaker 2: keeping up with the payments can actually be pretty confusing.
Speaker 2: You know, while paying something in an installment loan seems
Speaker 2: pretty simple enough, so imagine if you're making a number
Speaker 2: of purchases on different days of the week, with more
Speaker 2: than a dozen services all offering different terms and conditions.
Speaker 2: Some with installments do every two weeks and another once
Speaker 2: a month. I don't think it's that hard to see
Speaker 2: how consumers can fall behind on payments and how those
Speaker 2: payment schedules can be pretty confusing.
Speaker 1: I suppose somebody listening to this could say, well, if
Speaker 1: you're taking out that many buy now pay Later loans,
Speaker 1: maybe you shouldn't be doing that. That there's a certain
Speaker 1: amount of personal responsibility here.
Speaker 2: Yeah. I think the buyer beware is advice that every
Speaker 2: financial advisor will give. But I think what makes buy
Speaker 2: now pay Leader different is they're not covered by traditional
Speaker 2: consumer protection laws. I mentioned the Truth and Lending Act earlier,
Speaker 2: and it's a landmark law that requires extensive disclosures for
Speaker 2: unsecured consumer loans, but that only applies to loans that
Speaker 2: require five or more payments, meaning that buy now pay
Speaker 2: Leader services often fall in this gray area because they
Speaker 2: are limited to four payments. Consumers are at risk because
Speaker 2: they don't have the same underwriting standards, and a lot
Speaker 2: of these Bye now pay Leader services don't actually report
Speaker 2: to credit reporting bureaus. If you apply to a credit card,
Speaker 2: they will probably know if you have a line of
Speaker 2: credit out with a number of other credit providers, but
Speaker 2: with buy they Now pay Later because they don't report.
Speaker 2: You don't know if someone is using a firm and
Speaker 2: Klarna and after pay, and actually, the Consumer Financial Protection
Speaker 2: Bureau found that that's where consumers fall at risk. Most
Speaker 2: buy now Pay Later users aren't just using one service,
Speaker 2: They're using multiple on top of each other, called loan stacking.
Speaker 1: Pauliniam, do we know how many people who use the
Speaker 1: buy now Pay later services are paying it off in
Speaker 1: the time allotted and how many of them fall behind
Speaker 1: and wind up having to pay fees?
Speaker 2: Roughly eleven percent of borers paid at least one late
Speaker 2: fee in twenty twenty one, an increase from the prior year,
Speaker 2: and a growing percentage of loans industry is making are
Speaker 2: being charged off. That means loans are considered so delinquent
Speaker 2: that they're likely uncollectible.
Speaker 1: When we come back, we hear from a single mother
Speaker 1: who reluctantly uses buy now, Pay Later services to help
Speaker 1: make ends meet. August, So, you said how people sometimes
Speaker 1: find themselves needing by now pay later for essentials. What
Speaker 1: did people you spoke to tell you about that?
Speaker 4: We got very different perspectives. At the same time that
Speaker 4: we saw more people who see it as an alternative
Speaker 4: to credit cards. We also saw some people who are
Speaker 4: using buy now Pay Later as a lost resort. So
Speaker 4: as an example, someone we spoke to is Face Smith
Speaker 4: at the Single Motel in Alabama.
Speaker 2: Face Smith is just trying to make ends meet. Around
Speaker 2: sometime last year, she got a notification that buy now
Speaker 2: Pay Leader services were available at a major retailer, and
Speaker 2: now she you know, maxes out credit on a number
Speaker 2: of buy now Pay Later services. She compared getting groceries
Speaker 2: to putting together a puzzle figuring out where she has
Speaker 2: money to pay for groceries and using a mix of
Speaker 2: those to make sure that she has enough nutritious food
Speaker 2: for her daughter.
Speaker 1: Our producer Moberro spoke to Faith Smith and here's what
Speaker 1: she had to say.
Speaker 3: It really started the whole struggle with buying groceries when
Speaker 3: the pandemic hit. Lost my job of ten years and
Speaker 3: I took kind of like a placeholder job that paid
Speaker 3: substantially less than what I was making before, and it
Speaker 3: got difficult to pay bills, rent, utilities, you know, all
Speaker 3: those necessities that you need. And it was getting to
Speaker 3: the point where I was struggling to get groceries on
Speaker 3: the table. I was skipping meals, making sure my daughter
Speaker 3: was able to eat, you know, just do what I
Speaker 3: needed to do to cut corners when it came to
Speaker 3: getting food on the table, and it was a struggle
Speaker 3: for a while, you know, and I was looking for
Speaker 3: some other weight out of it. I believe it was
Speaker 3: through a mobile app notification. It was just like, oh,
Speaker 3: new stores have been added that you can use. So
Speaker 3: I started looking and there were like a few grocery
Speaker 3: stores on after pay Clarna PayPal, and I kind of
Speaker 3: started looking at the different companies that use that, the
Speaker 3: grocery stores that accepted it, and I utilize that to
Speaker 3: you know, get lots of like fresh fruits and vegetables,
Speaker 3: nothing frivolous, just to make basic, decent, well rounded meals
Speaker 3: for my daughter and myself. It's been a lifesaver, but
Speaker 3: still a headache because you still have those reminders every
Speaker 3: two weeks. It's like, oh, don't forget, you're gonna have
Speaker 3: this chunk of money automatically taken out of your bank account,
Speaker 3: and then you check your bank account, holding your breath
Speaker 3: hoping it's going to go through. I mean, it's easy
Speaker 3: to get yourself tied up into possibly using too many
Speaker 3: of them at the same time. So you have like
Speaker 3: all those real stacked on top of each other. But
Speaker 3: I haven't really had too many issues with it myself.
Speaker 3: I try not to utilize it if I don't have to,
Speaker 3: but sadly I have to use it more than I
Speaker 3: would like to have to use it, and it's like, okay,
Speaker 3: I can't even go buy like a carton of eggs
Speaker 3: without having to split it up into payments. It's exhausting sometimes.
Speaker 1: And what's your takeaway from that after you hear that story?
Speaker 2: You know, I think it's really tough to hear for
Speaker 2: all of the larger conversations about whether or not we're
Speaker 2: in a recession or not, Inflation is still really high,
Speaker 2: and I think sometimes we forget that even those wages
Speaker 2: are rising at faster pace and inflation for some people,
Speaker 2: people are still struggling and working to make ends meet,
Speaker 2: and they're running out of places to turn.
Speaker 1: Augusta Paulina, thanks so much for coming on the show.
Speaker 1: Thank you, thanks for listening to us here at the
Speaker 1: Big Take. It's a daily podcast from Bloomberg and iHeartRadio.
Speaker 1: For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts,
Speaker 1: or wherever you listen and we'd love to hear from you.
Speaker 1: Email us questions or comments to Big Take at bloomberg
Speaker 1: dot net. The supervising producer of the Big Take is
Speaker 1: Vicky Bergalina. Our senior producer is Atherine Fink. Our producers
Speaker 1: are mow Berrow and Michael Falero. Kilde Garcia is our engineer.
Speaker 1: Our original music was composed by Leo Sidrin. I'm West Kasova.
Speaker 1: We'll be back tomorrow with another big tag.