Krista Michels can't get enough of the online services that allow American shoppers to pay for everything from Christmas presents to monthly bills without fees, known as "buy now, pay later."
"I'm kind of addicted now," said the young mother in Washington state.
She first turned to these solutions offered at check-out stores or online to rebuild her credit rating, which was too low to access a traditional credit card.
Michels now uses them whenever possible, at the supermarket or to pay her internet bills.
Startups like Affirm, AfterPay, Klarna, and Sezzle usually allow consumers to pay for a purchase in four installments without fees or interest, like a typical credit card but without the associated paperwork and the complexities of fees and interest payments.
They've also proven useful for consumers who do not have access to traditional credit, such as new immigrants to the United States.
But consumer advocates say they carry the same risks as credit cards and shoppers must be careful not to saddle themselves with excessive debt and stay mindful of the services' differing terms.
"The concern is that people could get overextended if they're not careful," said Chuck Bell, a program director at Consumer Reports.
Don't 'overextend your finances'
The concept of paying in installments is nothing new in American commerce, but the disruptions of the Covid-19 pandemic were a boost to these new services, as more shoppers bought online.
From chain stores to small online sites, retailers have organized partnerships to offer such payment services to customers and help them afford what they usually could not, while financial institutions from Mastercard to Goldman Sachs are looking to offer their own.
According to a study by consulting firm McKinsey, these payment solutions represented six percent of unsecured loans in the United States in 2016, nine percent in 2020, and are expected to rise to 13 percent in 2023.
"It's practical, it saves consumers because of lower interest costs and it's disruptive," said Kenneth Leon, CFRA's banking industry specialist.
Big business agrees: Australia's AfterPay was purchased by Square for $29 billion this summer and Affirm is valued at $37 billion on Wall Street.
Regulators have taken notice of their success, with the Consumer Financial Protection Bureau over the summer warning consumers to be wise and not "overextend your finances" when it comes to these products. At the same time, officials said current regulations on the firms are sufficient.
Michels, the shopper from Washington state, admits that the risk is there. She has never missed a payment on anything she's purchased, but she spends more than she usually would.
"It's almost like a game. What can I do to get my limit increased?" she told AFP.
The plethora of offerings with different terms has consumer advocates worried that shoppers may wind up behind on payments.
"The rules and practices of each of these companies might be different," said Bell of Consumer Reports, noting that many of these services' users are young and lower income.
Affirm doesn't charge late payment fees but does charge interest on certain transactions. Afterpay charges penalties for late payments but never more than 25 percent of the original purchase, while Sezzle allows its customers to reschedule one payment per order.
Some startups work with credit rating firms, but others do not.
All say they won't issue customers new loans unless they're current on their payments, but nothing prevents consumers from going elsewhere for credit.
Another concern is that getting refunds is more complicated when returning an item paid for with one of these services.
Lauren Saunders, an associate director at the National Consumer Law Center, said these products are not fundamentally different from traditional credit.
"Even with shiny fintech garb, new credit products need basic consumer protections for credit to ensure that it is affordable, responsible, transparent, and fair," she said at a congressional hearing earlier this month.