Why millennials and Gen Z are jumping into the buy now, pay later trend

All 21-year-old Taylor Emmi wanted was a cosmetic kit from makeup artist and social media star Jeffree Star after seeing a video about the brand on YouTube in October 2019.

So she made the jump to $ 144, and almost two years later, she dumped thousands of dollars on a makeup brand that she normally couldn’t afford thanks to a buy now-pay-later platform known as Afterpay.

“Obviously I really like things and want to collect them, but I could never have had half without Afterpay,” said Emmi.

Buy Now Pay Later Platforms that allow customers to buy on installment plans are growing in the US, and younger Americans are looking for new ways to shop for high-priced items like computers and designer clothes at higher salaries. bass are obsessed.

While platforms have been around in the US for years, demand and investor interest in companies are starting to pick up. Just this week, digital payments company Square said it would buy Afterpay in a $ 29 billion stock deal. As of June 30, Afterpay served more than 16 million customers and approximately 100,000 merchants.

Apple is also reportedly partnering with Affirm Holdings Inc.’s PayBright to launch an installment payment program for Apple devices purchased in Canada, according to Bloomberg. And Affirm shares, which went public in January, were up about 23% in the last three months through Friday. Klarna is valued at nearly $ 46 billion and raised $ 639 million in a funding round led by SoftBank.

And much of that interest is coming from 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 buy now pay a later users for this story. Most said they were drawn to the platforms because of their convenience. At least six were influenced by peers or social media to start using the platforms and most started in the last year.

How it works buy now pay later

Platforms like Afterpay allow users to make large purchases like a new MacBook without having to pay the full cost up front. They generally 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 payment with the merchant’s website.

User accounts are usually linked to a debit card or bank account, where payments are made automatically. They also offer automatic reminders when an automatic payment is coming up. As a user purchases more on time with the platform, their spending limit increases. For Emmi, that limit is $ 2,000 in Afterpay and $ 1,000 in Klarna.

Many platforms do not charge customer interest, making money mainly from retailers’ 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 typically spend more.

‘Sounds cheaper’

Many younger consumers say they use buy now pay later because they want new clothing 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 for an ad campaign. “I spend a lot of money and it makes me feel better when I don’t have to pay it all at once.”

Breaking down costs because it “feels smaller” is not uncommon among younger generations, who struggle to think or plan for the future, said Sarah Newcomb, a behavioral economist at financial services firm Morningstar. In the United States, consumers focus on material goods rather than saving, a problem that social media is amplifying, he added.

Chiziterem Ogbonna admits that there is a culture on TikTok and social media where people overspend and that is contributing to the growth of buy now pay later among their generation. Many platforms are using TikTok for paid ad campaigns with influencers, a platform that some cash-strapped Millennials and Gen-Zs are also using to make jokes about the trend.

Eighteen-year-old Ogbonna often uses Klarna for purchases over $ 100 from clothing company Shein because four payments of $ 25 “sound cheaper but it isn’t,” he said. At least four of the interviewees echoed that sentiment.

Some experts say that in the wake of the financial crisis, 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. He likes not to worry about abusing his credit limit with Klarna or Afterpay because “they don’t know you owe anything.”

Many young Americans say they use buy now pay later in moderation. Of those interviewed, at least four said a purchase must exceed $ 100. Emmi uses Afterpay or Klarma on whatever purchase she can, but warns of overspending, a lesson she learned when she lost her job during Covid-19 and fought for pay the mounting bills in installments.

“You want nice things and you think ‘I’ll be able to pay for them in time,’” Emmi said. “But you have to work for a long time to [make a payment]. “

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