Missed Payments, Rising Interest Rates Put ‘Buy Now, Pay Later’ to the Test ⇥ wsj.com

AnnaMaria Andriotis and John Stensholt, in a Wall Street Journal article published last week:

Payment plans that allow shoppers to split up the cost of things such as clothing, makeup and home appliances were all the rage last year. The companies behind the plans saw their valuations surge. Scores of retailers rushed to add them at checkout. Block Inc. (formerly Square Inc.) in August announced a roughly $29 billion all-stock deal for Afterpay, one of the biggest companies in the business.

But late payments or related losses are piling up for the industry’s biggest players — Affirm Holdings Inc., Afterpay and Zip Co. Their borrowing costs, meanwhile, are rising. Buy-now-pay-later companies sometimes rely on credit lines whose rates rise and fall along with the Federal Reserve’s benchmark rate, which has risen 0.75 percentage point so far this year and is poised to go up even more.

Apple today announced Apple Pay Later which, like these services, breaks a larger payment over several months with zero added expense for the buyer. Joshua Bote of SFGate reported last month finding these services marketed heavily to younger consumers, some of whom struggled with increasing debt loads.