On the supply side: More retailers are offering “buy now, pay later” vacation financing
Buy now, pay later, financing is becoming a staple for Walmart, Amazon, Target and many other retailers ahead of the holiday shopping season. Walmart was the layaway king for years, providing consumers with the flexibility to purchase holiday gifts or other big-ticket items on time and at no additional cost.
One caveat was that consumers had to pay for layaway items on a regular basis and the purchase had to be made and picked up at the store by December 15.
This year’s consumers do not have this option. Walmart recently switched to a new financing program offered by Affirm, a finance company that offers installment loans for retail purchases over a period of time.
Peggy Knight, Vice President of Woodridge Retail at Rogers, spent 22 years at Walmart before leaving the company in 2006 as Senior Director of Financial Services. Knight said the switch to Affirm does not replace the layaway. She said many customers who typically use layaway are non-bank and often deal in cash. Affirm and other Buy-It-Now and Pay-On Funding programs require a bank account or credit card on file, which is debited monthly for payments.
“This new program appears to be leaving some of Walmart’s top shoppers out of luck this holiday,” Knight said. “I can certainly understand that putting away takes more hours of work, and there is the problem of having to store items often in containers behind the store or in back rooms.
“But there’s no way to value all the good publicity Walmart has received over the years when celebrities go to random stores and pay everyone’s layaway before Christmas.”
The other problem with comparing layaway financing and Affirm financing is that Walmart did not charge interest for holding the items and allowing customers to make regular payments. Affirm charges interest in most cases, which is determined by credit score. Walmart said most purchases would incur charges with an APR between 10% and 30% depending on the credit score and the item purchased. Some things are still eligible for 0% APR, but this will usually be a promotional offer affecting certain items only.
This isn’t the first time Walmart has put aside its vacation layaway program. The company cut layaways in 2006, citing a lack of customer interest.
The company brought it back in 2011 on a limited basis and reinstated the program in 2012 under the leadership of Greg Foran, then CEO of Walmart in the United States.
Walmart recently said it chose not to set aside this year due to the decline in usage in recent years. Walmart executives said they believe retailer payment options are now the right solutions for customers today.
Scott Benedict, director of retail studies at Texas A&M University, said he understands the rationale behind setting aside due to labor constraints and the cost of storing items.
“Affirm and other pay-as-you-go solutions have become much more prevalent in recent years as consumers have shopped more online for everything,” said Benedict. “Target hasn’t traditionally offered a layaway and now offers Affirm financing, and that’s a smart move on their part. “
Target recently announced that customers can request Affirm financing for purchases over $ 100. Target has also partnered with Sezzle, another payment solution that allows consumers to pay over time without interest. The Sezzle option, like the Affirm payment plan, requires consumers to apply, and their credit limit varies based on credit score and ability to repay.
Consumers who buy through the Sezzle app can place their orders. Sezzle then pays Target for the total purchase. Consumers then set up a repayment plan which is typically four to six weeks depending on the size of the order. Sezzle does not charge interest, but consumers must have a bank account or a pre-loaded Visa or Mastercard debit card with which to pay for the purchase.
“We know our customers want easy, affordable payment options that stay within their family’s budget,” said Gemma Kubat, President of Retail and Financial Services at Target. “Through our partnerships with Affirm and Sezzle, Target is investing in new financial tools that make our shopping experiences more flexible and personalized to customer needs, just in time for the holiday season.”
Bed Bath & Beyond, Macy’s, and Amazon have also recently started offering buyers buy now and pay later for certain purchases.
Mark Vinter, senior economist at Wells Fargo Securities, recently said the financial market buy now, pay later was already causing a stir before the pandemic and is now looking to gain momentum before the holiday season. He said the biggest players in buy now, pay later financing are Affirm, Klarna, Paypal’s Pay in 4 service, and Afterpay, which was recently acquired by the Square mobile payment platform.
Vinter said that part of the popularity of the services is because they are cheaper than paying with most credit cards which charge higher interest rates. He said it’s also an option for consumers who don’t want to go through extensive credit checks and those who may not have a high enough credit score to get traditional cards. He warns that the flexibility of payment options is better called “point-of-sale financing,” saying it could lead some consumers to make purchases they really can’t afford. Vinter said some governments such as the UK have started to regulate the financial sector buy now, pay later.
Vinter said stimulus and monetary support was keeping many households afloat amid the pandemic, and credit scores on average improved as lockdowns limited spending options.
“Consumers remain in a very good position. Yet the growing popularity of these programs invites some credit risk, especially since they are in high demand by younger generations who already tend to have the most difficulty with transforming credit card debt. in serious delinquency. Additionally, while some of these programs have no interest rate, others may have a greater impact on missed payments, ”said Vinter.
A recent survey by consultancy group McKinsey estimated that buy now, pay later platforms have siphoned off between $ 8 billion and $ 10 billion in annual revenue from banks and credit card companies over the past 18 months. McKinsey also estimates that point-of-sale credit will account for between 13% and 15% of unsecured loan balances by 2023, up from 7% in 2019. The survey also found that 60% of those surveyed said that they were likely to use the point of sale. sales programs over the next six months to one year.
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