The concept of an installment plan isn’t new, but the pandemic has seen an explosion of “buy now, pay later” brands glamorized with the BNPL acronym. They are perfect when you want to soften the blow of a big old purchase but do not so good when they allow bad spending habits, build up your credit, and lack the consumer protections that genuine lenders have. Thusday, SF door published an absolutely heartbreaking article on how these brands have capitalized on Gen Z. The statistics are overwhelming: 43% of Gen Z users have missed at least one payment, according to a survey by the Piplsay Polling Station.

In July 2021, the Consumer Financial Protection Bureau, in a consumer warning, cited a Credit Karma survey that found 42% of Americans had used BNPL’s services at least once, 38% had missed a payment, and 73% of those missed had seen their credit score drop. . But the services have been glamorized by influencers on TikTok, whose nonchalant cries of BNPL in transport videos can inadvertently plunge shoppers into a deep, dark hole of debt. In a report provided to SF door According to Afterpay, 73% of Gen Z consumer spending is on fashion.

Stores pay to maintain BNPL services because they incentivize customers to spend. Instead of ripping the band-aid and shelling out the $400 for your Shein or Peloton ride or whatever, you can spread it out over multiple payments, sometimes interest-free. Retailers usually pay the BNPL a small percentage of the transaction, just like they do with credit cards. Stores love them because they entice customers to spend more, and customers love them because they let you splurge before payday.

Meet the Players — Based on a June 2021 fundraising round, Stockholm-based Klarna is valued at $45.6 billion. It has 90 million users and operates amid a slew of competitors like Affirm and Afterpay, which was acquired by mobile payments company Block, formerly known as Square, to $29 billion in January. PayPal bought the company Paid for 2.7 billion.

A credit card under another name — For most BNPL services, you don’t need to submit a big formal request like you would for a new credit card. Instead, you download an app and receive purchase-by-purchase approval. There’s less waiting, less friction, and less paperwork between you and your new items. Some services report missed payments to credit bureaus, but few report successful repayment histories, which means BNPL is not a great way to establish credit. Afterpay has faced federal class action lawsuits in both California and Maine alleging that the company failed to properly pass the charges behind its service.

Some experts are calling for more regulation. Adam Wright of the California Department of Financial Protection and Innovation said Bench that BNPL’s services “are loans, and they should be regulated by someone like us, under a law that gives consumers more protection.”