Americans’ use of “buy-now-pay-later” options has skyrocketed in recent years — and retailers are capitalizing on the trend.

Why it matters: This check-out feature is “one of the biggest new trends in shopping right now,” Axios’ Erica Pandey recently wrote.

By the numbers: Americans’ use of “buy now, pay later” options surged 438% between November 2019 and November 2021, according to an Adobe analysis reported by Retail Dive.

• Companies such as Afterpay, Klarna and Affirm let customers spread payments out over time without interest.

Many prominent retailers use one of these services — including Peloton, DSW, West Elm, Target and Lululemon.

Driving the news: Last week, Charlotte-based Belk announced it is partnering with Afterpay to start offering a buy-now-pay-later option.

• The service allows customers shopping online or in person the option to pay “responsibly with four interest-free installments,” Belk said in a statement.
• The option is free for customers who pay on time.

“We always strive to give customers the best and most convenient options for their shopping experience, and they’ve really responded to the Buy Now, Pay Later model, especially younger customers,” said Belk CEO Nir Patel.

A Belk spokesperson did not respond to a request for further details about the Afterpay deal.

There are three main conditions that have come together to drive this new customer behavior and growth in a new consumer finance product category, says Roger Beahm, a marketing professor at Wake Forest University.

• There’s been a need in the marketplace. In the past, there’ve only been two options — pay now with cash or debit or pay later with credit, Beahm says. Obviously, the downside with credit cards is high interest payments.
• Tech innovation has given rise to new products that didn’t exist a decade ago.
• The pandemic has created a change in consumer attitudes and behaviors. People feel less secure these days about their state of employment and future income, Beahm notes.

The model is especially popular with Gen Z consumers, he adds.

“I do think retailers, in an effort to remain competitive, are going to move toward this in some form or fashion. Retailers who offer it are going to have an advantage over those that don’t,” Beahm says.

The rapid growth and popularity of buy-now-pay-later platforms like Afterpay and Affirm has made them almost ubiquitous. But the federal government is still trying to figure out how to regulate them.

• Companies see such models as “convenience features” or payment plans,” the tech site Protocol recently reported.
• Oftentimes regulators and consumer advocates, on the other hand, see them more as a form of a loan that should have protections like credit cards, per Protocol.

The House Financial Services Committee recently held a hearing on buy-now-pay-later regulation.

“Disturbingly, part of the business model of some BNPL providers may count on consumers who do not pay on time and who incur late fees,” Lauren Saunders, an associate director at the National Consumer Law Center, said during the hearing, as Protocol wrote.

There’s risk in spreading your payments out over time — namely purchasing things you can’t afford, as Pandey notes.

• Two-thirds of shoppers said using buy-now-pay-later financing caused them to spend more than they would have otherwise, according to a recent survey from Charlotte-based LendingTree.
• One in three shoppers said they use this type of financing to buy things they normally wouldn’t be able to afford, including designer items, per LendingTree.

You also may incur fees if you don’t pay on time, Beahm says. Still, he sees growth in these so-called “micro installment loans.”

“It’s going to become mainstream because of the need it satisfies in the marketplace. I don’t think that need will go away after the pandemic,” Beahm says.