Consumers and Companies Are Buying In on Paying Later

Many providers will also let consumers create a virtual card in just a few minutes, with hundreds of dollars made available to spend at participating retailers. Some of the apps double as online marketplaces, listing participating merchants and linking directly to their online stores.

That’s how Ms. Kellett stumbled on a recent obsession: Surf’s Up Candle, based in Belmar, N.J., was listed on Afterpay’s app. “I would have never known their brand existed,” she said.

That’s part of the lure for merchants — even though pay-later services can be three times as expensive to offer as credit cards, costing those businesses between 2 percent and 8 percent of the transaction amount, according to Jefferies, a financial services firm.

“It definitely makes them spend more,” said Michelle Fontanez, who started Surf’s Up Candle with a crockpot in her kitchen in 2014 and now has 60 employees and a retail location. She added Afterpay last year, and Shop Pay earlier this year. “People love to pay it off and not have to pay in full,” she said.

But consumer advocates worry about the potential implications of these growing services. Pay-later usage generally isn’t reported to credit bureaus like Equifax and TransUnion, so there’s nothing stopping people from juggling multiple services. And their varying policies can lead to unpleasant surprises.

“They work differently and you have to dig deep in the weeds to figure out the cost to you,” said Rachel Gittleman, financial services and membership outreach manager at the Consumer Federation of America.

Pay-later services usually charge late fees for missed payments, starting around $7 each and sometimes capped at 25 percent of the total spent. They will cut off users until they catch up, and can reduce their spending power once they have. And though several providers say they don’t report payment behavior or outstanding debts to the credit bureaus, serious delinquencies may show up eventually. Some companies, including Affirm, Afterpay, Klarna and Zip, reserve the right to send the account to a debt collector, which can lead to repeated phone calls or other efforts to recover outstanding balances.