Buy Now Pay Later What Could Go Wrong?

Klarna, Affirm, and Afterpay have turned four easy payments into a whole new credit universe. Economic uncertainty and regulatory scrutiny—and, of course, the usual debt problems—are spoiling the fun

- By Esmé E. Deprez, Evan Weinberger, and Jenny Surane, Jason Grotto

For three days each week during the month of April in 2014, a seasoned product manager named Lulu Young, an engineering manager named Paul Connolly, and a 24-year-old jewelry salesman named Nick Molnar gathered in a bare, windowless conference room in Melbourne to hash out the features and functionality of a financial product that existed only in Molnar’s head. The goal was to appeal to two constituencies at once: online retailers, who were always eager to convert more virtual browsers into actual shoppers; and consumers, some of whom didn’t have credit cards but, Molnar thought, might still like a way to get their goods first and then pay for them over time.

The product that emerged gave would-be users two options, both of them interest-free, which placed them outside Australia’s credit regulations. The first was called Pay After Delivery, which let people wait 30 days before handing over any money, not unlike using a credit card. The second option, Pay Over Time, let people split their bill into four installments. It didn’t take long for Young and her colleagues to agree on the structural details: They’d need to let people stretch payments over more than 30 days, but “we didn’t think that a much longer period was necessary and looked at 60 days,” she says. “Two payments made it too similar to the existing paradigm: payments roughly every month. The mental gymnastics for four was straightforward—halve any number and halve that again.”