All 21-year-old Taylor Emmi wanted was a makeup kit from makeup artist and social media star Jeffree Star after watching a video about the brand on YouTube in October 2019.
So she took the plunge from $ 144 and almost two years later spent thousands on a makeup brand she normally couldn’t afford thanks to a “buy now, pay later” platform known as Afterpay is.
“Of course I like the things very much and I would like to pick them up, but I would never have got half of them without Afterpay,” says Emmi.
Buy Now Pay Later platforms that allow customers to buy in installments are on the rise in the US, and younger Americans who are looking for new ways to buy high-priced items like computers and designer clothes at lower wages are obsessed.
While the platforms have been around in the US for years, investor demand and interest in the companies is increasing. Just this week, digital payments company Square announced it was buying Afterpay as part of a $ 29 billion all-stock deal. As of June 30th, Afterpay was serving more than 16 million customers and around 100,000 merchants.
Apple is also reportedly working with Affirm Holdings Inc.’s PayBright to launch an installment payment program for Apple devices purchased in Canada, according to Bloomberg. And Affirm’s shares, which went public in January, are up about 23% in the past three months as of Friday. Klarna is valued at nearly $ 46 billion and has raised $ 639 million in a financing round led by SoftBank.
And much of that interest is coming from the younger generation, Millennials and Gen-Zs, who are turning to the various BNPL platforms instead of traditional high-interest credit cards.
CNBC interviewed seven Millennial and Gen Z users for this story. The majority said they were attracted to the platforms for convenience. At least six were influenced by colleagues or social media to start using the platforms, and the majority started within the last year.
This is how it works, buy now and pay later
Platforms like Afterpay allow users to make large purchases like a new MacBook without having to pay the entire cost upfront. They typically let users pay in four installments over a six-week period. Most also offer an accompanying app or web browser plug-in to equip the payment with the merchant’s website.
User accounts are usually linked to a debit card or bank account, where payments are automatically debited. They also offer automatic reminders when an automatic payment is due. As a user makes more on-time purchases with the platform, their spending limit grows. For Emmi, this limit is $ 2,000 for Afterpay and $ 1,000 for Klarna.
Many platforms do not charge the customer any interest and make money mostly from retailer fees and some late fee fees. Affirm charges interest. Platforms grew 215% year over year in the first two months of 2021, according to an Adobe analysis. Studies have shown that consumers tend to spend more when paying in installments.
Many younger consumers say they use “buy now, pay later” because they want new clothes or electronics and don’t have the money, said Joseph Flowers, a full-time content creator. The 22-year-old regularly updates his wardrobe for his social media videos and uses Afterpay when a bill exceeds $ 300.
“This generation likes to buy a lot,” said Flowers, who started using Afterpay when approached about an advertising campaign. “I spend a lot of money and feel better when I don’t have to pay everything at once.”
The sharing of costs because it “feels smaller” is not uncommon among younger generations who have difficulty thinking about the future or planning for the future, said Sarah Newcomb, behavioral economist at financial services firm Morningstar. In the US, consumers are more focused on material goods than saving, an issue that social media exacerbates, she added.
Chiziterem Ogbonna admits that there is a culture on TikTok and on social media where people spend too much, and this is helping to increase buying interest now later in their generation. Many platforms use TikTok for paid advertising campaigns with influencers, a platform that some Millennials and Gen-Zs also use to joke about the trend.
18-year-old Ogbonna typically uses Klarna on Shein clothing company purchases over $ 100 because four payments of $ 25 “sound cheaper, although it doesn’t,” she said. At least four of the respondents gave this opinion.
Some experts say that the younger generation is moving away from traditional credit and direct debit schemes in the wake of the financial crisis. 21-year-old Emmi, who works as a bartender and waitress, has two credit cards that she rarely uses. She likes not to worry about overloading her credit limit with Klarna or Afterpay because “they don’t know you owe anything”.
Many younger Americans say they are using Buy Now Pay Later sparingly. At least four of those surveyed said that a purchase must cost more than $ 100. Emmi uses Afterpay or Klarma for every purchase she can, but warns against spending too much money, a lesson she learned when she lost her job and struggled to pay rising installment bills during Covid-19.
“You want beautiful things and you think I’ll be able to pay for it in time,” said Emmi. “But you have to scratch a lot of time [make a payment]. “