The option is popping up at more and more online checkouts: “Buy now, pay later.” No interest. No fees. No Social Security number. Just a few clicks to get what you want now and split the payments over time.
So how are these companies making money and what’s the catch?
Economist and UNO business professor Mark Rosa says the answer lies in their relationship with retailers.
Rather than relying on interest from consumers, these companies partner with merchants, giving them a way to offer flexible payments without the upfront risk.
“In times when people feel like everything costs more, this makes customers feel endeared not just to the store, but to the third-party lender,” Rosa explains. “That loyalty can turn into repeat business for both.”
If a shopper misses or abandons payments, Rosa says the companies can simply block them from using the service again, much like a store refusing future layaway.
Any losses, he adds, may be treated as part of the normal “shrinkage” that businesses already plan for.
While the industry hasn’t drawn major federal oversight yet, Rosa says its rapid rise since the start of higher inflation means regulators are almost certainly paying attention.
“It’s not necessarily dubious,” he says, “but it is a mystery.”
According to the American Marketing Association, buy now-pay later installment payments boost spending, with customers increasing their purchases by as much as ten percent using the option.