Processing a million transactions a day, Klarna is one of the lifeblood of the Buy-It-Now industry, for Pay On-The-Go.
David Sykes, Klarna’s director for the United States, said TODAY that the company is helping make shopping easier for people. While some components allow budgeting and cash flow management, many customers use the app without using the payment component.
Klarna offers buyers three payment methods. The first is like Sezzle, offering payments in four installments without interest over a period of time. The second is to pay within 30 days without interest or fees. Buyers can also finance at their own pace over 6 to 36 months, which may bear interest. This means that customers may be subject to interest if they do not pay their balance by the due date each month. Klarna uses the annual percentage rate for standard purchases, which is 19.99%. Customers are only presented with a potential interest in the financing option.
Sykes says credit cards are king in the United States, but the credit card companies largely rely on them earning interest when customers miss a payment.
“We win when our customers pay us back,” Skyes said. “Credit card companies win when customers don’t.”
According to Sykes, the average value of an order placed through the Klarna app is $ 150. If any payments are missed, the user will not be able to make another purchase through Klarna unless that payment is made.
Like Sezzle and Klarna, Afterpay offers users the ability to purchase an item using interest-free payments every two weeks for six weeks. With 15,000 retailers in the United States and 50,000 worldwide, Afterpay finds that 90% of its audience pays with a debit card, according to Melissa Davis, the company’s chief revenue officer.
“We’re really focused on responsible spending and making sure people are able to pay on time and with the funds they already have,” Davis said. “95% of our audience pays on time. “
Consumers who use Afterpay are not subject to interest, consumption charges, or credit checks. However, in its installment agreement, Afterpay states that for California users, the company could submit a credit report to a rating agency if the borrower “does not meet the terms of the borrower’s credit obligations.” which could have a negative impact on your score. Afterpay told TODAY that it has not yet reported any credit bureaus.
According to Davis, Afterpay is more of a budgeting tool, so shopping is less about being able to afford the item, but budgeting for it as part of a customer’s daily expenses.
Like Sezzle and Klarna, Afterpay does not allow users to continue using the service if they fail to make a payment, which helps them avoid a “revolving debt line”.
Is it worth it?
Tiffany Aliche, founder of Budgetnista, a financial education company, remembers going to stores with her mother when she was growing up and watching her mother buy layaway items. This interest-free process of reserving an item and collecting it after payment in installments has evolved into the debit or credit process we see online today.
The benefit of the layaway back then, Aliche told TODAY, was that you had physical money leaving your presence. When it comes to shopping online or even just swiping a credit card, it’s much easier to spend too much money or to max out, she said.
“I don’t believe in having a couch bill, a lamp bill, a placemat bill… these are things you should really save and buy once,” Aliche said. If people spend more than they earn, it starts to add up and at some point the bills come due.
While a buy now, pay later program is easy to use, especially when there are no fees, Aliche wants consumers to choose to save. She pointed out that these purchases add to the rest of your financial life.
But Aliche doesn’t recommend avoiding buying now, paying for programs later at all costs. If you can pay him back in three months, that’s OK in his book, however, anything over that goes into the danger zone.
“If something costs $ 150 and you have $ 125, wait and save,” she said.
If you’re unable to wait for a purchase and feel like you need a certain item, Aliche suggests thinking about not being able to wait like a chip in a glass. Anytime you don’t wait, the glass gets another shard, and at some point, enough shards will shatter the glass.
While the buy-it-now and check-out programs are easy to use and appear to be at the convenience of the consumer, both Aliche and Cardone claim that they benefit the retailer far more than the customer.
“If it’s easy to do, it’s probably not good for you,” Cardone said.