US starts to pay purchases in installments – 06/10/2023 – Market

US starts to pay purchases in installments – 06/10/2023 – Market


Buy a new outfit and divide it into 12 interest-free installments. Pay in installments for a trip. Or even divide market purchases into a few payments.

Installing trivial purchases over long months, something natural in Brazil, was off the radar of Americans until recently. But, with income strangled by record inflation in the country over the last year and with the increase in the supply of financial services over the internet, interest-free installment payments are also increasingly common in the United States.

Americans call it “borrowing”. A buy now, pay later (BNPL) loan.

One of the most striking movements in this trend came in March of this year with Apple Pay Later, in which the iPhone manufacturer allows payments made with Apple Pay from US$ 50 to US$ 50 to be divided into up to six weeks without interest. 1,000 (BRL 5,000).

“There is no one-size-fits-all approach when it comes to how people manage their finances. Many people are looking for flexible payment options,” said Jennifer Bailey, vice president of Apple Pay and Apple Wallet at Apple, at the launch of the service.

Research from March of this year by the American lending company LendingTree showed that 46% of Americans say they have already paid for purchases in installments. Last year, it was 41%. In the previous year, 31%.

There is an important generational cut: when looking only at consumers of the so-called generation Z, defined by the company as young people between 18 and 26 years old, 65% used BNPL. Among millennials (27 to 42 years old), it was 55%.

“There is no doubt that inflation played a role in the BNPL, as well as rising interest rates. There are a significant number of Americans who are struggling to make ends meet and are looking for any help they can get to extend their budget,” says Matt Schulz , chief credit analyst at LendingTree.

“Already saddled with student loans and other debt, many Americans want to avoid credit cards because the last thing they want is the possibility of more lingering debt.”

The company’s research pointed out that 27% of those who use installments claim that they had to resort to BNPL to fit purchases into the month’s budget. In addition, 21% said they had paid for grocery shopping in installments – which experts do not recommend, as they are recurring expenses that will accumulate later. Clothes, shoes and accessories are the most common products, shared by 46% of respondents.

“The fact that so many people are using these loans for something as fundamental as putting food on their plate is concerning, but unfortunately, I don’t think that’s going to change anytime soon,” says Schulz.

But overall, more than half of consumers regretted using the service.

One of them is publicist Adam Ivory, 31, who asks to use his middle name because he is not comfortable with the debt he took on after paying in installments for a mattress of US$ 900 (R$ 4,500).

“It wouldn’t be impossible for me to put all the money together instead of paying in installments, and it would have been much better”, he says, who says he paid only the first of 6 installments, and has difficulties in calculating the size of the loss.

With the increase in popularity, so have the installment options. In 2020, PayPal launched “Pay in 4”, which allowed payments to be made in up to four installments over six weeks, with a limit of US$ 600 (R$ 3,000). Last year, it announced “Pay Monthly”, with the possibility of paying in installments of up to US$ 10,000 (R$ 50,000) from 6 to 24 months.

Installment, standard for credit card operators in Brazil, is generally offered by fintechs in the United States, which partner with other companies.

This is the case of the recently announced partnership between Airbnb and Swedish fintech Klarna, for example. When a traveler makes a reservation through the rental platform, they can pay in installments, via a partnership with the financial startup, the accommodation in up to four payments divided over six weeks without interest. It is a novelty for the American, but it has been available in Brazilian rentals for years – with the difference that it has interest.

“BNPL is more suited to those who have traditionally been outside of credit systems. Individuals with bad credit or who don’t trust the system can access these installment services more easily,” says University of Michigan professor Justin T. Huang.

For him, even with inflation cooling down in the US, installments should remain high due to the entry of big techs in the market.

“If before it was necessary to rely on making a debt with an unknown company, now those who have Apple Pay already have access to it, which makes it very attractive for consumers and becomes more mainstream”, he says.



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