Companies like Mpls.-based Sezzle help consumers buy now, pay later

That $128 pair of jeans can now be had for just four payments of $32. Dropping $100 on cosmetics seems less indulgent when the transaction is broken up into $25 payments. Even a pricey Dyson vacuum can be rationalized when purchased in $125 installments.

And retailers from Amazon to Walmart to your neighborhood boutique are buying in, too.

The option to buy now and pay later has soared in popularity, accelerating last year as consumers bought almost everything online at the start of the pandemic. But the little buttons under those Lululemon leggings or that new TV that suggest spreading your purchase over six weeks or more — often at no cost — are expected to change spending habits in lasting ways.

"I think of it as a credit card, without interest," said Jenna Kellett, 27, a personal assistant in Dublin, Ohio, who was enough of a fan of one of the leading services, Afterpay, that she became a moderator on a Facebook group where members track new features and follow participating retailers.

If you haven't encountered a pay-later option before, you will soon. One major provider, Affirm, announced a deal last week to offer its service on Amazon, the nation's largest retailer. And Square, the payments firm run by Twitter CEO Jack Dorsey, agreed in early August to acquire Afterpay for $29 billion, a deal that will open installment payments to millions of small business that process sales through Square's app.

Younger adults — who have now lived through two major economic upheavals — have embraced the services, similarly to the way they have favored debit cards over credit and all that it represents.

"Their preferences are starting to become the trend," said Nick Molnar, co-founder and co-CEO of Afterpay, who said 90% of the company's users pay later using a debit card.

Afterpay and Affirm — along with competitors such as Minneapolis-based Sezzle, Klarna and Zip — are only beginning to push into territory long dominated by credit cards, which accounted for 30.4% of U.S. online sales last year. That's far more than the 1.7% from pay-later services. But their share is expected to nearly triple to 4.8% of sales — or $79.7 billion — by 2024, according to Worldpay, a payment processing firm.

They are already more established overseas: Pay-later accounts for 23% of online transactions in Sweden, almost 20% in Germany and is also popular in Norway, Finland, Australia and New Zealand.

"There was already growth before the pandemic," said Ginger Schmeltzer, a senior analyst for the research and advisory firm Aite-Novarica, which estimated there are about 125 million pay-later users at the top six providers worldwide, although that includes people using multiple platforms. "Now, it is like a hockey stick. What we are seeing is that it is not slowing down."

The idea is straightforward: The purchase price is usually split into four interest-free installments, with the first payment generally due at checkout. It's smoothly embedded in the shopping experience, offering almost immediate approval — sometimes not even requiring a so-called soft credit inquiry, which doesn't affect your credit score in any case. There are generally no finance charges, or additional fees if you pay on time, although some services, including Affirm, may charge interest to some consumers using certain payment products.

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.

Pay-later services usually charge late fees for missed payments, starting around $7 each and sometimes capped at 25% of the total spent. They will cut off users until they catch up and can reduce their spending power once they have.

And although 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.

But Sezzle CEO Charlie Youakim said his company allows users to opt in to having their payment record — good and bad — reported to help build their credit history. Fifteen percent of Sezzle's 3 million active users don't have one, he said.

"If we don't report, we aren't helping them get to the next stage," Youakim said.

Kimberly Williams, an avid user of several services, said she would only recommend them to people who are financially fastidious.

"You cannot use these types of plans and not be fully in sync with your finances, how the plans work and what you can afford," said Williams, 42, a health care research site manager.