The next frontier for buy now, pay later is plastic

In the face of rising inflation, higher interest rates and slowing economic growth, there’s more competition than ever for consumers’ dollars — and even how their purchases are made.

During the pandemic, most shoppers showed a preference for buy now, pay later when it came to payment and still do: Installment buying has exploded in popularity along with a general surge in online shopping.

Now, Apple is joining the mix with Apple Pay Later, which allows the consumer to pay in four payments over six weeks, turning up the heat on similar offerings from companies like Affirm and PayPal, according to David Morris, Insider Intelligence’s principal analyst.

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“This will further pressure BNPL fintechs, which are already facing regulatory, competitive and investor tailwinds,” he said.

Not necessarily, according to Sezzle’s CEO, Charlie Youakim. The good news is “the sector continues to grow,” he said.

Already, 4 in 5 U.S. consumers use BNPL on everything from clothing to cleaning supplies, according to Experian, and most shoppers said buy now, pay later could replace their traditional payment method, primarily, credit cards.

Consumers see a buy now, pay later option when shopping online at retailers like Target, Walmart and Amazon, and many providers have introduced browser extensions, as well, which you can download and apply to any online purchase. Then there are the apps, which let you use installment payments when buying things in person.

But as Americans tighten their belts, BNPL’s big players, including Sezzle, Zip, Affirm and Klarna, are trying a new tactic to lure consumers — and it looks a lot like an old credit card.

All have announced the release of a physical card, which will be linked to your bank account with the option to pay in interest-free installments over time.

As Apple aims to replace everything in your physical wallet, rivals say there’s still a place for plastic, and these new offerings are innovative, too.

“We believe Affirm Debit+ is not only the most significant upgrade to the debit card since its debut over a half-century ago, but a truly revolutionary idea that can help millions of people enjoy life with a lot less angst about spending and saving money,” said Affirm’s CEO Max Levchin.

Meanwhile, some experts warn that consumers with multiple BNPL loans with multiple payment dates could find themselves in a debt spiral.

“The sector is still in dire need of regulation,” said Amrit Dhami, an associate analyst at analytics firm GlobalData. “More transparency is needed to ensure consumers understand that they are accruing debt through BNPL, which can negatively affect their credit scores.”

The Consumer Financial Protection Bureau has opened an inquiry into how BNPL lenders are using consumer data and reporting that information.

The financial watchdog said it is particularly concerned about how these programs impact consumer debt accumulation, as well as what consumer protection laws apply.

“The problem is that when they’re using buy now, pay later for more and more expenses, including groceries and other in store purchases, they can rack up a lot of debt,” CFPB Director Rohit Chopra recently said in an interview with CNBC.

The CFPB has not yet announced its next steps.

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