The Rise of Deferred Payments

The Pandemic’s Impact on Shopping Habits

“Buy now, pay later” programs are seeing a surge in popularity, both at brick-and-mortar stores and on ecommerce platforms. Many consumers grew accustomed to shopping this way during the pandemic, and that trend does not appear to be dissipating.

In 2020 Americans spent roughly $20 to $25 billion through deferred payments. Analysts estimate that deferred payments could exceed $1 trillion worldwide by 2025. Small startups have led the way in the deferred payments space, but large tech companies are taking note of recent trends and are working to muscle their way into the industry.

Deferred Payments Offer Advantages for Shoppers and Retailers

Deferred payment programs provide advantages for both retailers and consumers. Many younger shoppers who are wary of credit cards appreciate deferred payments because loans are linked to a specific purchase and are designed to feel easier to manage than credit card debt.

Many deferred payment companies do not require credit checks and some do not even charge interest. Some put in other protections for borrowers. For example, Afterpay (AFTPY) does not allow consumers to continue making purchases if a payment for a previous loan is missed.

For retailers, deferred payments mean that more consumers feel comfortable purchasing higher-priced items. Sticker shock is less powerful when shoppers know they do not have to pay for a product in full.

Big Tech Wants Market Share

At the moment, most retailers use third-party fintech companies such as Affirm (AFRM), Afterpay, and Klarna to set up deferred payment options for their consumers. These platforms make most of their money in fees from retailers, rather than interest from consumers.

As deferred payments continue to gain popularity, larger tech companies are working to gain market share in the industry. PayPal (PYPL) recently debuted a “Buy now, pay later” service called Pay in 4. Meanwhile Apple (AAPL) is working with Goldman Sachs (GS) to build its own deferred payment service, which it plans to integrate into Apple Pay. Deferred payments have changed the way people shop over the past year. It appears that those changes could be here to stay.

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