Consumers and Companies Are Buying In on Paying Later

Many vendors also allow consumers to create a virtual card in minutes, providing hundreds of dollars to be spent at participating retailers. Some of the apps also serve as online marketplaces, list the participating dealers and link directly to their online shops.

So Ms. Kellett recently stumbled upon an obsession: Surf’s Up Candle, based in Belmar, NJ, was listed on the Afterpay app. “I never would have known their brand existed,” she said.

That’s part of the lure for merchants – even though pay-later services can be three times as expensive as credit cards and these companies cost between 2 and 8 percent of the transaction amount, according to Jefferies, a financial services company.

“It definitely makes them spend more money,” says Michelle Fontanez, who founded Surf’s Up Candle in 2014 with a pot in her kitchen and now has 60 employees and a retail location. Last year she added Afterpay and earlier this year she added Shop Pay. “People love to pay it off and not have to pay in full,” she said.

However, consumer advocates are concerned about the potential impact of these growing services. Pay-Later usage is generally not reported to credit bureaus like Equifax and TransUnion, so nothing prevents people from juggling multiple services. And their different guidelines can lead to unpleasant surprises.

“They work differently and you have to dig deep in the weeds to figure out the cost for you,” said Rachel Gittleman, manager of financial services and membership for the Consumer Federation of America.

Pay-lat services typically charge late fees for missed payments, starting at around $ 7 apiece and sometimes capped at 25 percent of total spend. They will cut users off until they catch up and can reduce their purchasing power once they do. And although some providers say that they do not report payment behavior or outstanding claims to the credit bureaus, at some point serious payment defaults can occur. Some companies, including Affirm, Afterpay, Klarna, and Zip, reserve the right to send the account to a debt collection agency, which may result in repeated phone calls or other efforts to collect outstanding amounts.

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