A couple years ago, an inventory of 23-year-old New Zealander MaCaulay Hyde-McCormick’s wardrobe would have revealed: one pair of boots a half size too big for him, clothes that either didn’t fit or were falling apart, and one pair of shoes so decrepit the sole of his feet would drag across the pavement every time he went for a walk. “I couldn't tell you the brand or anything like that because I'm unsure if they even had one?” Then he saw a practical-enough solution. “I first downloaded Afterpay because I needed a new pair of shoes,” he says.
Afterpay is one of a number of platforms that have sprouted up over the past couple years that are willing to float customers a couple hundred or thousand dollars to shop. In addition to it, there are Affirm, Sezzle, Klarna, and Quadpay. They are positioned as a more consumer-friendly option than credit cards, a whole host of services bent on—because this is 2019—disrupting the powers that be.
Silicon Valley promises aside, Afterpay is, at best, a platform that allows you to take out what amounts to a small loan on an item. After an approval process—Afterpay does not check a credit score; others like Affirm do—the customer pays a fourth of the price upfront and the rest is paid off in three equal installments every two weeks. Hyde-McCormick used to cycle through his cheap Kmart shoes every six months but figured, with Afterpay’s help, it was time to “invest in a pair from a name-brand.” He bought a pair of Converse Chuck Taylors, which retail for $55. “I’ve still got those shoes two years later,” he says.
In those last two years, he’s accumulated a lot more. “I hated a lot of the clothes that I had before,” he says. So every two weeks or so Hyde-McCormick goes shopping. Since first downloading the app and buying those Chuck Taylors, Hyde-McCormick has expanded what’s in his closet to $100 shoes, $100 jeans, $130 shoes, $135 worth of shirts, tees, and sweatshirts, $320 shoes, $120 shoes, a $185 skateboard, $305 shoes, $265 glasses, and $260 shoes.
Also new is the $1,500 limit, up from $500, that Afterpay raised after Hyde-McCormick proved himself a responsible shopper and the $87.50 payments currently due every two weeks.
Hyde-McCormick is one of the millions of people who are financing their everyday purchases with a new kind of loan. Globally, Afterpay, which launched in Australia, has over 4.6 million customers and 35,000 retail partners. In the U.S., where Afterpay only launched in May of last year, it has two million customers and is available at 6,500 retailers. Over five million people use Affirm, while another 500,000 have shopped with Sezzle. Far from a minor player in the credit industry, these platforms are upending customer’s relationship to credit. “It's a reflection of a new generation of consumers shopping differently,” says Nick Molnar, a co-founder at Afterpay. But for many, the end result is the same: debt, just with a sleek millennial-friendly interface.
Michael Jankus, a college student at Cleveland State University, was a perfect mark. “My friends give me a hard time if I owe them money,” he tells me. “They know that with going to school and working when I can, I don't really have $200 upfront. So I'll be like, ‘Hey, man, if you let me borrow $200, can I give you $50 every week?’ So it’s what I'm known for, really.” Lately, Jankus has replaced using his friends as small personal lenders with buy-now-pay-later companies like Afterpay and Sezzle, which are all too happy to oblige his request to borrow $200 and pay it back in installments over the course of several weeks or months.
He’s used them to buy a pair of Nike Air Max 95s and a hoodie that came out of a collaboration between the cartoon Rick and Morty and the rap duo Run the Jewels called Rick the Jewels. Upon seeing the Afterpay option at checkout for the first time: “I was excited,” Jankus says, “because I've always been the kind of person where money sort of burns a hole in my pocket.” But now, the money is burning in Jankus’s pocket like a shooting star: Cash sizzles before it even technically arrives.
Jankus’s story, impossibly, doesn’t have a sad ending. It has a boringly normal one: he got his hoodie, he got his shoes, and now like many other Americans—a 2019 NerdWallet analysis found that 50% of households are in credit card debt, and the total owed is $435.9 billion—he makes regular payments towards paying off these debts.
When Jankus first stumbled across Sezzle and then Afterpay, he did what any good college student would do and turned to mom. “‘Do you think this is a terrible idea?’” he asked her. “‘Should I not do this?’ And she's like, ‘Yeah. You don't want to be paying for these shoes that you probably won't even own by the time you're finishing them off.’” The disagreement between Ms. Jankus and her son highlight how the attitude towards credit has shifted over generations.
In conversations with executives at Afterpay and Affirm, both companies cited the 2008 financial crisis as a motivating factor in the founding of their companies. “ was definitely a big part of [Affirm’s founding],” says Ellen Kiehl, Affirm’s manager of consumer communications. “People don't trust credit cards. They want to be smart with their money.” Affirm’s co-founder Max Levchin, formerly of Paypal, famously needed help from an executive at Paypal to help him get a car because his credit was so low after making mistakes as a college student. These are the sort of horror stories told around the credit industry campfire. For customers like Jankus, tweaking how credit works even slightly was enough to sell him on Afterpay.
“With the credit card, you're not really sure how much you used,” he says. “You're swiping, you're bringing stuff home and then you get the bill and now your credit score is wrecked.” With Afterpay, Jankus says, “I just understand what I'm getting myself into much, much more… Whereas with a credit card, it's like, I don't even really fully understand how it works.”
Afterpay and services like it are not so different than any other internet-born company, like TikTok or Snapchat—what’s second nature to one generation is inscrutable to another. Afterpay makes complete sense to Jankus: “It's, ‘We're going to ask you to pay us $45 every two weeks. Once you do that, you're done. You're not going to hear from us again,’” he says. Then, crucially: “And you'll have your stuff."
Jankus’s description is reductive but he’s not that far off. Many of these services have found a way to make small loans available to the customer at no additional cost, so long as they manage to pay on time. Afterpay, for instance, instead of charging a customer APR, takes four to six percent of the transaction directly from the retailer. Jankus says his interaction with Sezzle went exactly as he outlined: he agreed to make payments, got his stuff, made those payments, and won’t hear from them again. Until he makes another purchase.
Of course, not all customers are as responsible as Jankus. Some of these services do charge APR—like Affirm, which charges anywhere from 10 to 30 percent interest on some purchases—and most employ a late fee as “an incentive to pay back on time,” Molnar says. (Affirm doesn’t punish people with late fees but warns “late or partial payments may hurt your credit score.”) Last year, close to a quarter of Afterpay’s revenues came from late fees. Today, nearly 20 percent of Afterpay’s global revenues come from late fee—a number so large it incited a backlash that encouraged Afterpay to change its system and implement a cap on these charges. Today, the number is still high, but late fees now represent less than 20 percent of global revenues. These statistics still compare relatively favorably to credit card companies, which derive a majority of their revenue from interest fees. Meanwhile, Afterpay’s biggest moneymaker is the transaction fee charged to retailers.
Critics of these services paint them as just another way to end up in a vicious cycle of debt. That’s not untrue! To a certain extent, entering vicious cycles of debt is a time-honored American tradition as old as getting caught up in stupid wars. Lauren Saunders, the associate director with the National Consumer Law Center, says there are pros and cons of these services. “The obvious con is they make it very easy to buy things on credit and to get into debt and to act on impulse and [for people to] buy things when you really can't afford it,” she says. But, she adds, that’s true for credit cards, or basically any other method of buying something that isn’t confined to the very straightforward process of paying for something with money you already have. “I know that people use credit cards to go into debt for a lot of purchases, as well,” Saunders says.
If Saunders has any qualms with these new emerging platforms, it’s that unlike credit card companies they don’t come with the option to chargeback items purchased that don’t live up to what the seller promised. Her other nagging concern is that she’s unsure what these companies are doing with customers’ data—and that's "just a ubiquitous problem.”
Even though Jankus himself confesses he’s terrible with money, he hasn’t run into an issue with Afterpay yet but he’s conscious that the next big sneaker drop or cartoon collaboration could spell his demise. “I know that I'm safe as long as I stay within a range that I am comfortable in,” he says. “But I know that the reward part of your brain just wants you to keep getting them because you just see the small number. I'd say I'm happy with it.”
The reward part of Sean Gauthier’s brain lights up for one thing, and one thing only: Shaquille O'Neal’s Reebok shoes. Some people collect Jordans or Air Max 90s, but Gauthier, a 38-year-old restaurant-nightclub managing partner, owns 13 of Shaq’s Reeboks that all sit on a shelf in his house unworn. Every night before bed, he scrolls through his phone checking to see if any of the other models he wants have become available in his size, 13. His grail is a combination of the Shaq Attack and Shaqnosis—a shoe swirling with the latter’s hypnotic black-and-white design but with the former’s tongue equipped with a goofy pump. He’ll buy any Shaq Reeboks he finds on sight, and has done exactly that three times over the past year, using Affirm on each purchase.
Gauthier says he doesn’t need to use Affirm, only that it helps him budget. The button on a mouse can feel immovable with a $400 shoe in the way but seeing the purchase dissolve into manageable chunks takes off the pressure. Suddenly there is no good reason you shouldn’t have those $400 shoes when they can be purchased by making four easy payments of $99.99.
For services like Affirm and Afterpay, fashion and beauty ranks at or near the top of their biggest categories. This is what worries critics of these services more than anything else. After all, nothing would turn Suze Orman into a pile of dust like the phrase, “I took out a loan to buy a pair of sneakers.”
It sounds like a silly thing to do but more than that these services are feasting on the impulse shoppers these categories often attract. Afterpay, Affirm, and the like garner a lot of comparisons to layaway services that were used by past generations to pay for big household purchases like mattresses or refrigerators month by month. Hardly anyone impulse buys a refrigerator. But with buy-now-pay-later platforms, the gate to debt is lifted for a totally new audience. It’s hard to imagine someone lusting after a pair of shoes so intensely they go ahead and open up a credit card to do so, but when the box is singing its siren-like song—three easy payments!—right there on the site it feels a lot more accessible.
At one point in our conversation, Jankus even relayed to me, “It’s stuff that I probably wouldn’t have bought otherwise—just online shopped for an hour, put it in my cart, and then just ultimately closed the window and gone to bed—but now I actually have it.” I suggest that maybe this is what’s ultimately scary about these services: allowing him to give into these purchases he ultimately would have just moved on from. “It’s sort of a slippery slope,” he replies.
Greg Fisher, Affirm’s CMO, spins all this a different way: their service is like a step ladder that allows customers to reach up and grab top-shelf luxury brands and items they previously couldn’t access. “When we're presented early on a merchant’s site, it changes someone's mindset,” says Fisher. ‘When they realize, ‘Oh, I can really afford the pair of shoes that I want’ or maybe, ‘I can get two pairs of shoes,’ or ‘I can get the shoes and the entire look.’ We make what people want feel a lot more approachable.” Affirm’s average order value is astoundingly high: $655—$505 more than Afterpay’s $150 average order value.
No one benefits from these services quite like the merchants, particularly ones in the fashion and beauty space.
“Within 24 hours of going live on a retailer's website in the US,” says Afterpay’s Molnar, “we will generally process 10 to 30 percent of a retailer's online transactions at an average order value which is higher than their normal… on average, retailers see a 20 to 50 percent uplift in average order values.”
StockX’s CEO Scott Cutler says that the average spend climbs to almost $300 from roughly $250 whenever Affirm is brought in. Over 100,000 people have used the service on StockX over the past year to make purchases like a $5,000 pair of Jordan sneakers made in collaboration with the now-shuttered retailer Colette, a $14,000 Rolex, and a $7,000 piece of luggage from the Supreme x Rimowa collection. For Mike Pham, the owner of Long Beach-based sneaker store Proper, adding Sezzle has proven to be a “sales driver” for his store—22 percent of all transactions are now made using Sezzle.
“Millennials and Gen Z have a very strong affinity to fashion, beauty, footwear, brands,” says Molnar. Afterpay is live at over 10 percent of all beauty and fashion retailers in the U.S., according to the company’s data. That’s part of what makes these services so potentially ruinous: they are leveraging millennials’ distrust of traditional credit card companies to sell them a product that can lead them down the same financially destructive road and doing so by making products at the top of their wish list—clothes, sneakers, travel—that much more accessible.
The breed of purchases that buy-now-pay-later services enable are salves, short-term floods of endorphins meant to ward off the bad financial feelings most millennials are faced with. Millennials are more in debt than any generation before it, faced with lines on a graph all moving in the wrong direction. Wages have stagnated, stable job opportunities have dissolved to gig-economy ones. Meanwhile, the prices on the things we need to live and thrive—education, housing, and health care—are shooting up. The generation papering over these thoughts with pants paid off by loan is also probably the one putting themselves in the most danger by doing so.
So, like me, you may have imagined the carnage Hyde-McCormick was headed towards. A college student who was buying $10 shoes suddenly caught in the spin cycle of purchasing and paying back dozens of clothing purchases? That spells imminent irreversible financial doom.
Somehow, impossibly, it did not. Hyde-McCormick says he’s smart, responsible, and watches his purchases carefully. He likes his new clothes and feels like he can better express himself now. Even his credit score is improving just from using the app and paying on time. “My credit score is better than my mother’s even and she was able to buy a house,” he says. “That’s incredible to me... “ But, statistically, he might be more of the exception than the rule.
In the reporting of this story, the thing that is scarier than anything else is examining our casual relationship with debt. We justify the purchases we make to better express ourselves, or to stock up on Reebok Shaqs, or to buy the items we really want just before bedtime. A NerdWallet survey found that one in 11 Americans believe they will die, literally cease to exist before their debt does. In this environment, debt is omnipresent, nearly normalized—decisions to jump on this treadmill are done blithely with no intention of hopping off.
Gauthier says that the only reason he hasn’t purchased more Shaq Reeboks is because none have become available. Just before we got on the phone, he had received a text from Affirm that his next payment was due. Jankus only recently purchased those Air Maxes and is still paying them off but he believes he’ll settle his debt soon.
“And then probably as soon as I pay this off,” he says, “I'll immediately start another.”
Originally Appeared on GQ