Amazon has become the latest big name to get into the buy now, pay later space. The e-commerce giant announced it is partnering with Affirm to install the payments option on its popular e-commerce site.
Affirm’s buy now pay later checkout option will be available to certain Amazon customers in the U.S. starting Friday with a broader rollout in the coming months, the companies said in a statement. The partnership will let Amazon customers split purchases of $50 or more into smaller, monthly installments.
“By partnering with Amazon we’re bringing the transparency, predictability and affordability that Affirm provides today to the millions of people who shop on Amazon.com in the U.S.,” Eric Morse, Senior Vice President of Sales at Affirm, said in a statement. “Offering Affirm’s alternative to credit cards also delivers more of the payment choice and flexibility consumers on Amazon want.”
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The companies promised transparency in their financial dealings with customers saying “as always, when choosing Affirm, consumers will not be charged any later or hidden fees.”
Also, Amazon spokesperson told Engadget in an email that customers must agree to a soft credit check at checkout. The financial terms offered depend on both the person’s credit card history and the purchase price, she explained, adding that depending on the customer and their order value, they might be offered anywhere from a three-to 48-month payment plan, with interest ranging from 0% to 30% APR.
In addition, Affirm spokesperson said that whatever interest consumers pay related to these loans, they agree to those rates up front, and that interest does not compound.
Affirm’s stock spiked as much as 44% after-hours Friday on the news.
The buy now pay later idea is growing as part of the burgeoning lending space buoyed by younger consumers’ move towards alternative lines of credit. Earlier in August, Square made a big move into the space with a $29 billion acquisition of Australian fintech Afterpay.
As noted by CNBC, the so-called installment loans have been around for decades, and were historically used for big-ticket purchases such as furniture. What we see unfolding now is online payment players and fintechs, competing to launch their own version of “pay later” products for online items in the low hundreds of dollars.
Affirm is one of the best known installment payment options. It works with more than 12,000 merchants, including Peloton and Walmart.
PayPal, Klarna, Mastercard and Fiserv, American Express, Citi and J.P. Morgan Chase are all offering similar loan products. Bloomberg reported last month that Apple is planning to launch installment lending in a partnership with Goldman Sachs.
The partnership makes a lot of sense for Amazon since it will drive a throng of consumers, especially young people, to its e-commerce store.