Buy-now-pay-later loans are often used to spread out interest-free payments for expensive purchases such as smartphones, furniture or appliances. Now hungry consumers can add another option to that list: food.
While this might add another layer of convenience for shoppers, some experts warn that these services can have a negative impact on customers who are buying items they don’t need and cannot afford.
Delivery app DoorDash has partnered with payment and commerce service Klarna to offer customers choices when they check out, including paying immediately, in four installments or deferring payments to “a more convenient time, such as a date that aligns with their paycheck schedules,” according to a Thursday news release.
“As we expand DoorDash’s offerings – from groceries and beauty to electronics and gifts – flexible payment options are essential to meeting our customers’ needs,” said Anand Subbarayan, the company’s head of money products, in the release.
One of DoorDash’s main competitors, Grubhub, also uses Klarna for payment solutions.
Buy-now-pay-later services such as Klarna, Affirm and Afterpay are increasingly being used by U.S. consumers. This past holiday season, more shoppers than ever used delayed payment methods, according to reporting by The Washington Post.
Last year, the Consumer Financial Protection Bureau classified buy-now-pay-later apps in the same category as credit cards to better protect consumers. The CFPB’s classification requires lenders to investigate disputes and cover refunds when consumers need to return an item or cancel a booking.
Yet even with no additional interest fees, buy-now-pay-later loans still present risks for consumers, experts say. These loans work on the simple psychological principle of separating the pain of losing something – your money – from the pleasure of receiving something, which in the case of DoorDash is food, said Anish Nagpal, an associate professor of marketing who studies behavioral decision-making at the University of Melbourne in Australia. These services that separate pain and pleasure increase the amount of money consumers spend, he said.
“The problem is these things start having a very pervasive and very negative influence on people who can’t afford it,” Nagpal added. “They just want something now, and they go into this spiral of debt and always trying to chase up and meet the payment requirement.”
Nitika Garg, a professor and consumer behavior researcher at the University of New South Wales in Australia, said buy-now-pay-later options promote instant gratification in consumers, which can be problematic in the long run – particularly when they lead to unnecessary purchases.
“With declining financial savviness in consumers, I would expect these features to be used more,” she wrote in an email. “Especially if economic conditions are less than ideal, such as with consumers experiencing the cost-of-living crisis or recession conditions.”
Klarna and DoorDash did not respond immediately to a request for further comment.
Sweden-based Klarna filed its prospectus last week with a view to an initial public offering and a listing on the New York Stock Exchange in April. The company also recently announced that retail giant Walmart will use its buy-now-pay-later loan service. Klarna says it has 675,000 merchant partners across 26 countries, with 93 million active consumers.
This story was originally published at washingtonpost.com. Read it here.