Consumers’ Missed Payments Weighing on ‘Buy Now, Pay Later’ Programs
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Here's your Money Briefing for Tuesday, June 7th. I'm J.R. Whalen for The Wall Street Journal. Whether you shop online or in a store, you've probably seen signs for buy now, pay later programs. Companies like Klarna or Affirm give consumers the option of splitting the bill and paying it off over several weeks. That payment method proved to be a hit with shoppers last year when bank accounts were brimming with savings and stimulus money. But 2022 is a different story.
Some consumers that have been signing up for these plans have had a harder time keeping up with these bills, are falling behind.
Coming up, we'll check in with Wall Street Journal reporter Anna Maria Antriotis about how the slowing economy is affecting the buy-now-pay-later sector and what changes consumers who use them should expect going forward. That's after the break.
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Last year, business was booming for so-called buy-now-pay-later companies like Klarna or Affirm. But a change in some consumers' financial health and a slowing economy are putting that model to the test. So what does that mean for shoppers who use these programs?
How did buy-now-pay-later services become so popular in 2021?
WSJ banking reporter Anna Maria Andriotis has been keeping close tabs on this industry, and she joins us with more. Hey, Anna Maria, thanks so much for being with us.
Great to be speaking with you.
So, Anna Maria, why do these buy-now-pay-later programs become so popular last year?
So these programs became popular really as a result of consumers having a lot of pent-up demand to spend, as well as being flush with cash for a variety of reasons. A mixture of the government stimulus payments that went out during the early stages of the pandemic, an increase in household savings that was in part the result of people pulling back on spending early on during the pandemic. And what essentially has been perceived as several elements of these payment plans that are pretty consumer friendly with regards to how they allow people to split up their payments over time.
You know, it seemed like a good deal for consumers. You know, as the name says, buy now, pay later. Well, it's later. How are the companies doing now?
So the companies right now are dealing with a couple challenges. The first challenge is that late payments are or losses related to those late payments are rising. So we've basically seen this playing out with some of the sector's largest companies. When looking at a firm, for example, about 3.7% of its outstanding loan dollars that were held on the company's balance sheet were at least 30 days late at the end of March, up from 1.4% a year earlier. Increases also happen with regards to loan losses for both Afterpay and Zip. So what this data is showing is essentially that some consumers that have been signing up for these plans have had a harder time keeping up with these bills, are falling behind, which essentially raises questions about
The sort of overall financial health of the people who sign up for these payment plans in many ways do tend to skew more towards consumers who have less in savings and who have subprime credit scores.
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