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What role will buy-now, pay-later programs play in inflation?

By Kristopher Fraser


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Image: Klarna

Buy-now, pay-later might not be a new concept (hello, credit cards and mortgages). However, programs like Affirm, Klarna, Afterpay, and Zip have modernized what could be likened to layaway in the old days with installment plans that are interest-free if you pay within a certain timeframe. This sounds almost too good to be true, but these programs have continued rising in popularity, with 60 percent of American consumers saying they’ve tried buy-now, pay-later programs, according to a survey from The Ascent.

With rising inflation costs affecting everything from housing costs to gas prices, consumers are left with less disposable income to pay for things like clothes and miscellaneous purchases upfront. That’s where buy-now, pay-later programs come in. With so many retailers adopting buy-now, pay-later programs, the sector’s growth is no surprise.

The difference between buy-now-pay-later and old-school layaway is that old-school layaway was a start paying now, and after several installments, you’ll have your item. Versus with buy-now-pay-later, you pay an installment, get your item now, and slowly pay it over several other installments.

“Buy-now, pay-later is an interesting phenomenon,” said Michael Londrigan, chair of business at LIM College, to FashionUnited. “In terms of how it can affect inflation, it is determined by the price of the product. If it’s a high ticket item and you can lock in paying for the price now before inflation affects it several months later, you’re getting a better deal because you’re using today’s dollars. Versus, if you wait and make the purchase later and inflation has increased the price, you’re paying more money. Buy-now, pay-later programs can help consumers save money in the long run.”

Shawn Grain Carter, professor of fashion business management at FIT, told FashionUnited that given the current consumer price index has increased 8.3 percent over the past year. “The consumer price index increase is at a 40-year high,” Grain Carter said. “The bottom line is though; consumers are still spending. That’s what’s keeping the economy going. Consumers are willing to do buy-now, pay-later because they are going out again and traveling. People are shopping, not just online, but also in stores. Consumer demand has not waned.”

Grain Carter added, “What we have noticed is that more working-class consumers at places like Target, Ross, and Walmart have lower average transactions because prices are elevated. More of them are using the option of buy-now, pay-later when they are purchasing apparel.”

Professor Lawrence White of NYU’s Stern School of Business doesn’t see buy-now, pay-later as anything new, but he believes more consumers will continue to use it over time. “Your standard credit card is a buy-now, pay-later program,” White said to FashionUnited. “The ‘new’ buy-now, pay-later programs are nothing new. They aren’t a credit card arrangement because the applicability between the two isn’t the same. I’m an optimist, so I’d like to think we’ve seen the peak of inflation, and the rate of price increases will level off. As for buy-now-pay-later, the more familiar and comfortable they become with these programs, the more they will expand, but they are just a new version of the credit card arrangement. They aren’t fundamentally new.”

Buy-now, pay-later programs aren’t trying to stop their growth anytime soon. Some, like Klarna, have become fully licensed banks in Europe. Afterpay is expanding beyond retail into hospitality and healthcare.

The growth of buy-now, pay-later is just beginning. The benefit they have over traditional credit cards is that if paid in a certain number of installments in a given time, there is no interest. As consumers try to make ends meet while continuing spending, buy-now, pay-later programs are here to stay and see growth.

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