A $40 jersey in 4 installments

A $40 jersey in 4 installments


While many Quebecers live from paycheque to paycheque, credit card issuers are banking on the new “buy now, pay later” formula to encourage consumers to buy more.

“Pay over six weeks, interest free. No external credit checks, no interest, no surprises, and our customers love it,” boasts the site of Afterpay, an online deferred payment platform.

We knew the payment agreements spread over several months to buy a sofa or a washing machine. But in recent years, the formula has been developing on the internet. You can now buy a piece of furniture, but also a sweater for $40 and pay for it in four installments, from thousands of online merchants, in just a few clicks, without a thorough credit check, without paperwork. 

< p>This payment method arrived from the United States, before the pandemic, through fintechs, financial technology start-ups

$50 billion

Since then, the market has grown. Adoption of installment payments in Canada grew by 30% in 2020 and the market is expected to reach $50 billion per year, according to data from Visa. However, for each payment by deferred installments, the financial company collects a percentage of the amount invoiced. So the market is juicy.

“I was wondering why credit cards aren't launching and letting these fintechs eat the wool off their backs? says Jeffrey Giasson, VP. Finance from Soft Moc, a shoe brand that offers installment payments.

Finally, it is the turn of credit card issuers to get started. After making a first agreement with Desjardins in 2021, Visa announced new partnerships earlier this week. 

In a few months, it will be possible to choose deferred payment directly at the checkout at retailers like Simons or Soft Moc.

The latter, which owns a dozen shoe stores in Quebec, already offered this kind of online method to “respond to the desire of a young population, who live payroll to payroll and who want to buy an item without being able to pay at once.” 

Increase in sales

At first skeptical, Mr. Giasson says he was impressed by the results. The ability to spread out payments has increased sales.

Same observation in a Quebec SME that sells remote-controlled vehicles and which has recently implemented the option. “We have seen an increase in sales of at least 10% thanks [to deferred payments], assures Chantal Mélançon, general manager of QTM. It encourages the customer to buy. »

Indeed, a report on new payment methods from Deutsche Bank confirms that the process encourages people to consume more. Nearly half of customers (46%) who use a “Buy now, pay later” payment option at checkout would not have made a purchase without it.

“A another trap that is set for us”

If the “Buy now, pay later” formula can be accommodating, it can also lead to overconsumption and accelerate the indebtedness of many consumers.

“This makes credit very accessible”, underlines Sylvain Sénécal , professor at HEC Montreal. According to him, the formula can be useful for certain purchases, products that we really need, but for which we lack funds and we will manage to spread out the payments. 

But “it can also be something more impulsive,” he explains. If I want my eighth pair of shoes, in a different color, they're really attractive, and I'm offered to pay for them gradually… Overconsumption has something to do with that.”

“Creating false needs”

Youcef Ghellach, founder of the educfinance.ca site, is concerned about these practices. “Saying “there is no interest” encourages people to create false needs, believes the finance and accounting professor. This is another trap set for us. The main objective is to increase business revenue. »

Whether the purchase is essential or impulsive, the risk of not perceiving the impact of these purchases on our budget is significant, since we only pay a small part of the amount immediately. Even if the deadline is postponed, these expenses will have to be paid later.

“There are people who end up using credit to pay for deferred payment,” says Ghellach. He advises planning your purchases, saving as much as possible for expenses, and avoiding impulse purchases.

Different costs

For As for how “buy now, pay later” offers work, they differ by merchant and payment method.

Online offers are mostly interest-free, but in case of non-payment of installments, the costs can in some cases go up to 25% of the amount purchased. 

At certain merchants such as Soft Moc, a more traditional interest rate will be offered. If you don't pay each installment on time, credit card penalties kick in. 

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