The supply side: More and more retailers are offering vacation finance “buy now, pay later”
Buy Now, Pay Later Funding is becoming a must for Walmart, Amazon, Target, and a host of other retailers ahead of the Christmas shopping season. Walmart has been the king of the layaways for years, providing consumers with the ability to purchase Christmas gifts or other important items on time and at no extra charge.
One caveat was that consumers had to pay for the stock items on a regular basis and the purchase had to be completed and picked up at the store by December 15th.
This year consumers do not have this option. Walmart recently switched to a new funding program from Affirm, a finance company that provides installment loans for retail purchases over a period of time.
Peggy Knight, Vice President of Woodridge Retail in Rogers, spent 22 years at Walmart before leaving in 2006 as Senior Director of Financial Services. Knight said moving to Affirm is not a substitute for time off. She said that many customers who typically use Layaway do not have a bank account and often trade in cash. Affirm and Others Buy Now, Pay Later Financial programs require a bank account or credit card on file that is debited monthly for payments.
“This new program looks like it will leave some of Walmart’s core buyers out of luck this vacation,” Knight said. “I can understand that the layaway requires more hours of work and that there is the problem of often having to store the items in containers behind the shop or in the back rooms.
“But there’s no way you can appreciate all of the good publicity Walmart has received over the years when celebrities went into random stores and paid for everyone’s breaks before Christmas.”
The other problem with comparing Layaway versus Affirm Finance is that Walmart didn’t charge interest for holding the items and paying customers regularly. Affirm, in most cases, charges interest based on creditworthiness. Walmart said that most purchases would be subject to a fee with an APR of between 10% and 30% depending on creditworthiness and the item purchased. Some things still have an APR of 0% APR, but this is usually a promotional offer that only applies to certain items.
It’s not the first time Walmart has shut down its vacation program. In 2006, the company canceled its warehousing due to a lack of customer interest.
The company brought it back on a limited scale in 2011 and reintroduced the program in 2012 under then-Walmart-US CEO Greg Foran.
Walmart recently said it moved out of the layaway this year due to the decline in usage in recent years. Walmart executives are confident that retailer payment options today are the right solution for today’s customers.
Scott Benedict, director of retail studies at Texas A&M University, said he understood the reasons for storing shelves amid work constraints and the cost of storing items.
“Affirm and other pay-over-time solutions have become much more common in recent years as consumers shop more for everything online,” said Benedict. “Target has traditionally not offered a layaway and is now offering affirm funding, and that’s a smart move on their part.”
Target recently announced that customers can apply for affirm funding for purchases over $ 100. Target has also partnered with Sezzle, another payment solution that allows consumers to pay without interest over time. The Sezzle option, like the Affirm Payment Plan, requires consumers to submit an application and their credit limit varies based on creditworthiness and repayment ability.
Consumers who shop through the Sezzle app can place their orders. Sezzle then pays Target for the entire purchase. Consumers then set up a repayment plan, which is usually four to six weeks depending on the size of the order. Sezzle does not charge interest, but consumers must have a bank account or pre-loaded Visa or Mastercard debit card with which to pay for the purchase.
“We know our guests want simple, affordable payment options that work within their family budget,” said Gemma Kubat, President of Financial and Retail Services, Target. “Through our partnerships with Affirm and Sezzle, Target invests in new financial instruments that make our shopping experience more flexible and tailored to the needs of our guests right on time for Christmas.”
Bed Bath & Beyond, Macy’s and Amazon have also recently started offering shoppers the “Buy Now, Pay Later” option for select purchases.
Mark Vinter, a senior economist at Wells Fargo Securities, recently said the “buy now, pay later” financial market was already a buzz before the pandemic and is now set to intensify before the holiday season. He said the key players in Buy Now, Pay Later are Affirm, Klarna, Paypals Pay in 4 Service and Afterpay, which was recently acquired by the mobile payment platform Square.
Vinter said 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 was also an option for consumers who don’t want to go through extensive credit checks and for those who may not have enough credit to get traditional cards. He warns that flexibility in payment options is better known as “point-of-sale financing,” and says it could lead some consumers to make purchases they really can’t afford. Vinter said some governments like the UK have started regulating buying now, later paying the financial industry.
Vinter said incentives and monetary support kept many households afloat amid the pandemic, and credit ratings improved on average as lockdowns limited spending options.
“Consumers remain in a very good position. Still, the growing popularity of these programs carries some credit risk, especially as they are in high demand among younger generations, who tend to be the most struggling with credit card debt that is experiencing serious defaults. While some of these programs do not have interest rates, others can have a greater impact on missed payments, ”Vinter said.
A recent survey by advisory group McKinsey estimated that platforms that buy now, pay later have siphoned off between $ 8 billion and $ 10 billion in annual revenues 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 respondents said they were likely to point -of-sale would take advantage of sales programs over the next six months to a year.
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