In an advertisement Urban Outfitters a young woman switches on a neon sign on a bedside table that is becoming messy with neutral home decoration. In another, against a background of millennial pink and macrame, the woman stares at her phone and grins.

These ads are purportedly intended for the youth-focused reseller and include woven wall hangings, crystals, ceramics and other mid-priced kitsch – but they are primarily intended for Afterpay, a point-of-sale payment service that allows a customer to split purchases as low as $ 35 and so on. high as $ 1,000 in four separate costs.

Afterpay insists that it is not a finance company and that its services do not offer loans to consumers. It is "a retail tool, not a financial product", according to founder Nick Molnar. According to critics, this is only a semantics and the company avoids fair financial regulation.

Although young customers earn less and may be wary of supplementing their already-so-called indebtedness with consumer credit rules, they are more likely to take personal loans. Payment services at the point of sale, aimed at young consumers and their specific taste, are becoming increasingly popular; other competitors, including Affirm, Quadpay and Sezzle, are popular in this cohort. Their outbreak success seems to influence traditional competition, because credit card companies are running together to recapture the much-coveted demographic group with their own payouts: at the end of 2017, American Express launched Pay It Plan It, allowing cardholders to pay a fixed monthly fee for the possibility of Divide large purchases into a fixed number of interest-free payments.

Postpaying is perhaps the best compared to layaway, a service that has virtually disappeared with the arrival of credit cards, but has made a recent comeback, allowing shoppers to pay large purchases over time before they actually take possession of an item . Except for startups for payment in time, you get your item now and pay later. And we already have a word for that: debt.

ATPay, which was first established in Australia in 2014, now has a market capitalization of more than $ 3 billion Australian, or $ 2.2 billion US, and is traded on the Australian Stock Exchange – although it is still not profitable. Founder and serial entrepreneur Nick Molnar tops the 2018 Young Rich List of Shadow Bankers & # 39; of the Australian Financial Review, with assets of $ 341 million Australian, or $ 250 million US.

The majority of Inpay's revenue comes from retailers, not from shoppers. Stores pay a small percentage of every transaction that Afterpay uses for start-up, just as they would at a credit card company. Since Afterpay made its debut with Urban Outfitters in May 2018, a growing number of American retailers have entered into a partnership with the service, which specializes in smaller "discretionary purchases" such as clothing, jewelery and household items. Worldwide, the service is available at more than 17,000 retailers.

From the end of 2018, the company's most popular afterpay payment stores are low-cost to reasonably priced fashion and cosmetic brands: Urban Outfitters and its sister brands Anthropologie and Free People, along with Nasty Gal, Dolls Kill, ThirdLove, Kim Kardashian & # 39; s KKW Beauty, and the all-out cheap Forever 21 and Boohoo.

"More ways to make debts are probably not what we need most now"

The main American competitor of Afterpay, Affirm, offers loans with no installment interest, with interest, but debuted shortly after the launch of Afterpay in the US with a new no-interest three-month installment payment product. In retrospect, no interest is paid, and it offers only one payment plan: purchases are divided into four equal biweekly payments, the first being paid. "Afterpay has advantages when consumers pay their orders fully and on time," wrote Molnar in an e-mail – but those who do not do so are charged with late fees: $ 8 for each one-day payment made late, and an additional $ 8 for each week's payment is postponed further, up to 25 percent of the total purchase price.

According to ValuePenguin, 7 percent of Afterpay purchases are subject to at least one $ 8 late fee. But according to the latest annual report published in August, nearly 25 percent of Afterpay's revenue was derived from those consumer fees between June 2017 and June 2018. In Australia, where Afterpay has been available for years, consumers are increasingly having problems with their buy-now-pay-later purchases. A report from the Australian Securities and Investments Commission revealed that one in six of Afterpay's customers had overshadowed their account or had borrowed more money to make their payments. The National Debt Helpline reportedly receives a growing number of calls from Afterpay customers who struggle to keep their growing retail density in balance.

"More ways to make debts is probably not what we need most," says Lauren Leimbach, executive director of non-profit finance and a former vice president at Providian Financial. "The way they put it on the market is about purchases that help people feel good about themselves – that's the subtext – it's certainly a symptom of our society where people use retail therapy – that's not the fault of Afterpay, but it does ensure that certain people get big problems. "

Australian critics claim that the company is built within a legal loophole: without fixed fees or interest, afterpay and similar services fall outside the legal definition of a loan product. Australian regulators have advised reforms to regulate better buy-now-later-pay services, including Afterpay, along with other financial products for consumers.

"We do not offer consumers a loan, but a budgeting tool," says Molnar. "We are advocates of responsible spending." But Afterpay is offered to retailers as a means to realize larger order values ​​and more frequent shopping. The fact that more people spend more money – money they may not have – is the reason the company exists.

A pair of jeans with different labels, indicating the payment and reimbursement structure of Afterpay.

Sienna Easterwood had been looking at Afterpay for some time, but she only tried the service on Cyber ​​Monday. "I went directly to the Afterpay website to see if brands I like use Afterpay as an option," says Easterwood. "Steve Madden is a brand that I love, but I've only made a few pieces of it over the years because I do not want to spend that much money."

The deep holiday discount combined with the short-term loan option convinced Easterwood to buy two handbags where they would otherwise have stayed, for a total price of $ 112. "Even with the 40 percent discount I would not have bought anything, but it turned out that my terms would be $ 28, so I felt better, "she says. Easterwood completed its payments without incident in early 2019.

Store plans on installments may seem like a service for customers, but they are even more of a service for retailers. Lenders who do not charge interest earn most of their money to retailers who essentially pay to use the service to reach new customers and geese existing, and seemingly make more than the difference in total stimulated sales. Salesmen in turn promote the lender to customers, knowing that they will probably buy more if they do not immediately feel the price.

For some borrowers, Afterpay allows them to buy brands with ethical supply chains and fair working conditions, and associated higher price points – brands that may have more problems with capturing dollars that typically flow to larger companies.

"Offering customers the opportunity to make a choice is more important than imposing restrictions on them based on my own feelings about credit cards or late fees"

Direct-to-consumer start-up Everlane, which is proud of its transparent business practices, recently added an Afterpay option to its site. In addition to Urban Outfitters and Steve Madden, there are also many smaller clothing and beauty traders, including Jamie and Jones, Vetta and Moorea Seal Afterpay.

Moorea Seal promoted its Black Friday sale together with a pitch for installment payments. "We want to give you access to high-quality gifts for you and your loved ones at prices that are actually accessible to everyone, and AfterPay helps to make that possible, we love you!"

Tuesday Bassen designs and sells fashion and accessories that are mainly aimed at millennium and Gen Z customers. With only five employees producing all products of the brand in California, Bassen says its prices can rise above those of other, larger retailers.

"We are always looking for ways to make our clothing more accessible to everyone, and we chose Afterpay as an option to help accommodate our customers who needed gradual payments," she says. "Of course I'm worried about a credit card or a dismissal program, but in the end I think it's more important to let customers choose the agency than to impose restrictions on them based on my own feelings about credit cards or late fees."

She hopes that by encouraging sales in the short term, she will eventually be able to eventually lower prices in the long term by scaling up the business. "My idea was that Afterpay would help us to produce in higher numbers, reducing costs for us and ultimately for our customers."

Stacked boxes with Afterpay statistics.

After the launch of Afterpay in all its brands, the parent company of Urban Outfitters reported record sales in the second quarter, with a number of analysts adding the installment payment option as a contribution to the company. Sales in the third quarter, reported in November, were 9 percent higher than in 2017. But if the brand's super-active social media accounts are an indication, customers in Urban are not naïve about the disadvantages of shop financing. As one commentator wrote on an Instagram message that Afterpay promoted: "I would only finance a house."

Although many young consumers turn away from traditional credit cards, a survey showed that there are actually more older millennials with an outstanding credit card debt than a loan with student loans.

"There has always been mortgage debt," says Leimbach, "but the big growth is in unsecured debt and car loans, so many people do not have a living wage, so they only use credit to meet their current needs."

Urban Outfitters performed in 2018 only one Afterpay campaign with a black female model. This may be a marketing accident, but perhaps not: black people are subject to more predatory lending practices and products – and generally pay higher interest rates and costs – than their white counterparts, regardless of their financial capacity. Urban Outfitters did not respond to requests for comments about the relationship with Afterpay or the advertising campaign.

"So many people do not have a living wage and so they only use credit to meet their current needs"

Like most new app-based lenders, Afterpay uses proprietary technology to determine the creditworthiness of a customer, as opposed to traditional scores. For young people with a bad or no credit history, these loans can be less onerous to get than the lines of plastic credit that their parents have popularized.

"The success of Afterpay is due in large part to our state-of-the-art algorithm-based technology that allows fraud and reimbursement checks ahead of every order," says Molnar. "Strict order and account limits are applied to users and only increase over time with positive user performance."

Despite his insistence that it is not a lender, Molnar says: "Afterpay is fully committed to comply with applicable fair loan agreements and to treat all customers fairly."

The timing of the American debut of Afterpay is serendipit: given regulatory reversal and defense of the Consumer Financial Protection Bureau under President Trump, the federal government seems less inclined to pursue the regulation of existing financial products, let alone new ones. in years.

"In another administration, this product would be viewed by the CFPB and the CFPB would decide whether this would expose consumers to unnecessary risks," says Leimbach. "It's a" buyer's pass on "world. Postpay, confirm, even credit cards are all part of the problem. And then you have a product like [Afterpay] come along and tip it a bit further. "

Young people may earn less than ever and are to blame for the death of different consumer markets, but they still want to buy things – and that means finding new ways to pay it. The shoppers of Urban Outfitters know that Afterpay sounds like a problem, but they also sound like they will try it. "This will be the death of me," says Instagram. "Adds [Urban Outfitters] to my infinite debt without the question "reads another.

A woman on her phone, boxes piled with statistics from Afterpay.

On an individual scale, interest-free prepayments can provide cheaper loans to young consumers, who are wary of taking more than they can afford at a certain point in time – or they can mean a lot of shoplifting, built and used to benefit businesses.

As long as buy-now-pay-later-startups are being marketed and regulated as budgeting tools instead of loans, Afterpay and similar companies are convincing to convince more young customers who would otherwise not dare to believe that what they do is not really suitable, only because they do not have the money, does not mean that they do not really have the money. And just as the Australian regulators and consumer advocates have mastered the influence of Afterpay on that retail market, the US market – less than a year after its own Afterpay experiment – may soon face similar problems.

According to Afterpay, non-loans provide more frequent purchases and larger purchases from customers that they are unlikely to pay. If installment payments are a blessing to some customers, they are a real blessing for busy retailers fighting for less millennials and Gen Z dollars. But a bigger debt is no higher affordability. This does not feed an appetite; this is proactive, non-reactive service. And it has only just begun.

This story was produced with the support of the Economic Hardship Reporting Project.