Buy Now, Pay Later Apps: How They Work

If you’ve been to the mall or browsing online shopping sites recently, you may have seen some brightly colored advertisements urging you to split your purchase into four payments with Buy It Now and Pay Later companies such as Quadpay, Afterpay, Klarna, Affirm and Sezzle.

Designed to attract younger shoppers in stores and online, the apps promise a safer and simpler alternative to credit, with no interest or surprise fees. They are growing in popularity in the United States, sparking a dialogue on how to balance the benefits of services with consumer protection concerns.

Here’s a step-by-step overview of what happens when you use one of these services.


Customers must first download one of the apps and create an account, providing their full name, email address, phone number, date of birth, and billing address. Typically, apps send SMS and email verification codes to the account holder to make sure the contact information is correct and prevent fraud.

Before making a purchase, app users must provide valid debit or credit card information that will be used for payments. Depending on the payment plan, some businesses may request your social security number.

During the registration process, you also agree to the terms and conditions and determine whether apps can send you push notifications.

Behind the scenes, apps perform flexible credit checking and run customer information through their risk algorithms.

For a new user, the entire registration and payment process takes less than 10 minutes.

How you pay for your purchases

Some apps offer long repayment plans with interest on big ticket items. But the most popular buy-it-now and post-payment plans consist of four installments, with each payment covering 25% of the total transaction, including tax. The first installment is due immediately at the cash desk.

After that, the remaining installments are due every two weeks. Many apps encourage customers to sign up for automatic payments so that users don’t have to go to the app and approve each subsequent payment to their debit or credit card.

How apps make money

Applications generate profits in several ways.

Like credit cards, buy-it-now and late-pay companies charge merchants a fee on each transaction, typically 2-8% of the purchase amount.

Some apps also charge users a fee for using their platform. Quadpay, for example, charges a platform fee of $ 1 with each installment payment.

When users miss payments, they’re also subject to late fees, which typically start between $ 5 and $ 15, depending on the app. These fees can increase if a customer continues to default on installments.

How are apps different from credit cards?

Buy-It-Now and Pay-On-Pay services typically approve purchases once, which means users need to request business approval for every transaction.

In contrast, credit cards are a form of revolving credit. This means that customers can use their card for multiple purchases until they reach their credit limit.

Credit card companies and banks look at your credit history to determine if they should offer you a card and, if so, to set a credit limit.

Buy-It-Now and Pay-On Services can look at your credit history as well, but payout plans typically don’t do a “hard” investigation into establishing a line of credit, which would affect your credit score. credit. Instead, most apps use their own algorithms to determine if they should approve your purchases.

This means that it is often much easier for people with no credit history or with bad credit to get approved for the services.

Finally, Buy It Now and Pay Later services do not benefit from some of the protections offered by credit cards, especially in the event of a billing dispute.

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