Missed Payments, Rising Interest Rates Put ‘Buy Now, Pay Later’ to the Test

Affirm, Afterpay and Klarna grew rapidly during the consumer-spending boom. Investors have concerns as outlook looks cloudier

“Buy now, pay later” companies promised a credit revolution that would change the way people pay for things. Rising delinquencies and a slowing economy are clouding that outlook.

Payment plans that allow shoppers to split up the cost of things such as clothing, makeup and home appliances were all the rage last year.

The companies behind the plans saw their valuations surge. Scores of retailers rushed to add them at checkout.

Block Inc. in August announced a roughly $29 billion all-stock deal for Afterpay, one of the biggest companies in the business.

which has risen 0.75 percentage point so far this year and is poised to go up even more.

The young industry finds itself in a tricky spot at a time when the economy is slowing and, some fear, headed for a recession.

Buy-now-pay-later companies boomed when consumers were flush with cash and buying goods at a feverish pace.

How they fare in a downturn, when savings evaporate, spending slows and bad debts mount, is untested.

To weather the storm, Afterpay and Zip are slowing their new originations.