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Amazon Is Doing It. So Is Walmart. Why Retail Loves ‘Buy Now, Pay Later.’

The Wall Street Journal

By AnnaMaria Andriotis

Alexis Luedtke got her first “buy now, pay later” plan in 2019 after she was rejected for a credit card. She has used at least five more since to buy face cream, T-shirts and birthday gifts.

Installment plans are back in style. PayPal Holdings Inc. last week said it was buying Japanese installment payment startup Paidy Inc., following Square Inc.’s $29 billion deal for Afterpay Ltd. Macy’s Inc. and Bed Bath & Beyond Inc. have added the option at checkout over the past year. Even Amazon.com Inc. is doing it.

One reason: shoppers like Ms. Luedtke who don’t qualify for credit cards. Buy-now-pay-later companies say they rely less on—and in some cases bypass altogether—traditional credit scores and reports. Doing so allows them to approve more consumers. Shoppers gain the ability to buy things even without cash on hand—translating to higher sales for retailers.

Afterpay said it expects the company’s U.S. merchants will see an $8.2 billion increase in sales this year because of payment plans. Affirm Holdings Inc. AFRM +3.69% last year said purchases made with its payment plans were 85% larger, on average.

Shoppers spend more at Macy’s when they use installment plans offered through Klarna Bank AB, Macy’s CEO Jeff Gennette said on a recent earnings call. Klarna also is helping the retailer attract younger customers, he said.

“The value that most retailers see in buy now, pay later is customer acquisition,” said David Sykes, Klarna’s North America head.

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