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All Taylor Emmi, 21, wanted was a cosmetic 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 $ 144 plunge, and almost two years later shelled out thousands of dollars for a makeup brand that she couldn’t normally afford through a buy now pay platform. later known as Afterpay.
“Obviously I really love things and want to collect them, but I never could have had half of them without Afterpay,” Emmi said.
Buy now, pay later, platforms that allow customers to buy in installments are growing in the United States, and young Americans looking for new ways to buy high-priced items like computers and clothing. brands with lower wages are obsessed.
While the platforms have been around in the United States for years, demand and investor interest in businesses is starting to increase. Just this week, digital payments firm Square announced that it will buy Afterpay as part of a $ 29 billion stock deal. As of June 30, Afterpay served over 16 million customers and approximately 100,000 merchants.
Apple would also team up with Affirm Holdings Inc.’s PayBright to launch an installment program for Apple devices purchased in Canada, according to Bloomberg. And shares of Affirm, which went public in January, have risen about 23% in the past three months as of Friday. Klarna is valued at nearly $ 46 billion and raised $ 639 million in a funding round led by SoftBank.
And a lot of that interest is coming from the younger generations, millennials, and Gen Z, who are turning to the various BNPL platforms instead of traditional credit cards with high interest rates.
CNBC interviewed seven Millennials and Gen-Z who are now buying and paying subsequent users for this story. The majority said they were drawn to the platforms for their convenience. At least six have been influenced by their peers or social media to start using the platforms and the majority have started within the past year.
How to buy now pay later works
Platforms like Afterpay allow users to make big-box purchases like a new MacBook without having to shell out all of the costs up front. They typically allow users to pay in four installments over a six week period. Most also offer a companion app or web browser plug-in to equip the merchant’s website payment.
User accounts are usually linked to a debit card or bank account, where payments are taken automatically. They also offer automated reminders when an automatic payment is due. As a user makes more purchases on time with the platform, their spending limit increases. For Emmi, this limit is $ 2,000 on Afterpay and $ 1,000 on Klarna.
Many platforms do not charge the customer interest, making money primarily through retailer fees and some late fees. Affirm charges interest. Platforms grew 215% year-over-year in the first two months of 2021, an Adobe analysis suggests. Studies have shown that when consumers pay in installments, they usually spend more.
“It looks cheaper”
Many young consumers say they use buy now and 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 of things,” said Flowers, who started using Afterpay when approached about an ad campaign. “I spend a lot of money and I feel better when I don’t have to pay for everything all at once.”
Breaking down costs because it “feels smaller” is not uncommon among younger generations, who find it difficult to think or plan for the future, said Sarah Newcomb, behavioral economist at the service company Morningstar Financials. In the United States, consumers are focusing on material goods rather than savings, a problem social media is amplifying, she added.
Chiziterem Ogbonna admits that there is a culture on TikTok and social media where people overspend and is contributing to the growth of buy now pay later among her generation. Many platforms use TikTok for paid advertising campaigns with influencers, a platform that some cash-strapped Millennials and Gen-Zs are also using to make trending jokes.
Eighteen-year-old Ogbonna typically uses Klarna to get clothing company Shein to buy more than $ 100, as four payments of $ 25 “seem cheaper even if they aren’t,” she said. . At least four of those interviewed echoed this sentiment.
Some experts say that following the financial crisis, the younger generations are moving away from traditional credit and debit. Emmi, the 21-year-old who works as a bartender and waitress, has two credit cards that she rarely uses. She likes not to worry about using her credit limit with Klarna or Afterpay because “they don’t know you owe something”.
Many young Americans say they use buy now to pay later sparingly. Of those polled, at least four said a purchase must exceed $ 100. Emmi uses Afterpay or Klarma for any purchase she can, but warns about overspending, a lesson she learned when she lost her job during Covid-19 and struggled to pay increasing staggered bills .
“You want nice things and you think ‘I’ll be able to pay in time’,” Emmi said. “But it takes a long time to [make a payment]. “
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