Buy Now Pay Later -- Macro impact on consumer retail sales?

I remember hearing about “layaway” plans when I was a child. This was meant to reserve an item for a customer who couldn’t afford to pay for it right away. When I was in my 20s I was in a milliner’s shop having a hat fitted when a woman came in to drop off some cash toward a hat she had bought on layaway. This was a long time ago – I don’t remember if credit cards were common at the time.

The modern Buy Now Pay Later (BNPL) is different from both layaway and credit cards. It must be having a Macro impact on retail sales since both the N.Y. Times and Wall Street Journal had articles about BNPL today. The N.Y. Times focused on the consumer while the WSJ focused on the business aspect.

Buy Now, Regret Later?, by Peter Coy, Dec. 19, 2022

From 2019 until last year, the dollar volume of loans originated in the United States by the big five B.N.P.L. lenders grew to $24 billion from $2 billion, according to the Consumer Financial Protection Bureau. And most indications are that the strong growth has continued this year. According to a survey by Consumer Reports, 28 percent of Americans said in August that they had used B.N.P.L., up from 18 percent in January…

The big five B.N.P.L. companies operating in the United States — Affirm, Afterpay, Klarna, PayPal and Zip — present themselves as a friendlier option than credit card companies. Their predominant business model is pay-in-four, in which the first purchase is due at checkout and the other three are due at two-week intervals thereafter. There’s no interest on pay-in-four loans…

All of them say they evaluate the creditworthiness of customers before they extend credit to them. If someone does fail to pay back a pay-in-four loan, the lenders see it quickly and cut the borrower off… [end quote]

Buy Now, Pay Later—and Discount Never

Merchants that need to move product off shelves could be increasingly willing to give shoppers attractive financing

By Telis Demos, The Wall Street Journal, Dec. 19, 2022

Another way to effectively discount is to pay for attractive financing, particularly in the form of “buy now, pay later,” which is a kind of short-term credit that enables consumers to pay off a purchase over time, but pays the merchants in full upfront. A November survey by data and analysis firm PYMNTS found that more than 10% of Black Friday online shoppers paid with BNPL, up from around 8% last year, and under 4% two years ago. In some cases, merchants pay for this financing in the form of higher transaction fees than they would for traditional payments…

Selling inventory is a way for merchants to generate cash, which is increasingly valuable at a time of higher corporate borrowing costs. If those costs get sufficiently high, it may be worth it to subsidize even riskier consumers because they can keep generating sales…[end quote]

BNPL would appeal to consumers who are “unbanked” or with bad credit who have very high credit card interest rates (and the balance compounds exponentially). BNPL has a zero interest rate if they pay off the BNPL in the scheduled 4 payments. BNPL appeals to merchants because they can offload inventory and benefit even if the BNPL service provider charges a higher fee to the merchant than a credit card company does.

BNPL helps expand the customer base at the low end. It is growing and might have a Macro impact on increasing consumer retail sales.



Radio Shack still had a layaway program at the time I left, in 93. The terms and conditions on the layaway card, which the customer signed, required the item to be paid off, in full, in three months. The inevitable problems were people who put something on layaway, for the minimum amount, and never paid any more, so the product sat, and sat, became discontinued, was devalued, with the store, the company, and the store manager, all taking a hit from the shrink. In 88 or 89, the company sent out a sign, to be posted in plain view, in the store, that if someone did not abide by the t&c of the program and pay the thing off in a reasonable time frame, the merch would be returned to stock, and his deposit would be forfeit.

Layaway is still easier than trying to repop a small item.


I read about this recently somewhere, don’t remember.

Stores are thrilled at the development because it allows people to take stuff off the shelves, and the store has no risk. For that privilege they pay (this article said between 5-8%). Add that to the credit card skim of 2-3% and they’re basically pushing the stuff out at 10% off their retail - but it gooses sales significantly enough to make it worth their while.

In a way it’s like factoring, where businesses get paid a percentage of the receivables, and then it’s somebody else’s probably to actually collect. In this one the tables are turned, there’s a middleman taking a little slice on several billion in sales.

Stores are happy with a variety of price points: they sell for cash, they give up 2-3% for a credit card sale, now they give up another 5% for something else. The ones paying cash are subsidizing the rest, including me with my cash-back card.

This is a great article on the entire system.



Oh great. Another sketchy financing scheme, where the lender takes a skim, then fobs the risk off on someone else. Where have I seen that business model before? (sarcasm) How did it work out in the past? (more sarcasm)