Costco Has Partnered With Affirm To Offer Flexible Payment Options. Experts Say This Could Be a Bad Sign
Costco now offers Affirm to its customers.
Costco has partnered with Affirm to offer its members flexible payment options on everything from groceries to goods and services. Experts, however, say that this offering is a sign of a potential economic downturn.
Costco & Affirm’s Partnership
According to Bloomberg, Costco customers, if approved, can choose monthly Affirm payment plans for Costco purchases, according to a shareholder letter sent Thursday.
Affirm is a leading buy-now, pay-later company in the United States, alongside Klarna Group Plc and products from PayPal Holdings Inc. and Block Inc. The industry has become more competitive as consumers prefer pay-over-time choices over credit cards, particularly as interest rates have risen and inflation remains high.
Costco, the third-largest U.S. retailer, does not yet partner with Klarna.
Affirm and Klarna battled for partnerships with shops in the United States and Europe. Klarna has appointed Snoop Dogg and Lady Gaga as brand ambassadors to enhance its profile. Walmart, the world’s largest retailer, formerly worked with Affirm, but it has recently started a partnership with Klarna, which just signed an agreement with OnePay, a Walmart-backed fintech.
While this may appear to be a positive move for customers at first glance, some experts view it as a concerning indicator of deeper economic challenges.
Buy Now, Pay Later for Essentials Is Not Necessarily a Good Thing
In March, DoorDash partnered with Klarna to offer its customers buy now, pay later options. The agreement will expand flexible payment alternatives to DoorDash consumers, primarily for food delivery orders but also for broader category purchases on the DoorDash Marketplace, as well as the cost of the DashPass Annual Plan.
Klarna’s agreement with DoorDash comes as the company continues to expand its offerings in preparation for its IPO on the New York Stock Exchange in the coming weeks. Last week, the Swedish fintech company reported a 24% increase in 2024 sales, capitalizing on the BNPL frenzy, which is expected to reach $160 billion over the next seven years.
In addition to food delivery, DoorDash allows customers to purchase large-ticket items from third-party merchants such as Best Buy and Home Depot.
In fact, executives from both organizations were quick to point out the wide range of goods that this collaboration would provide clients access to.
“Our partnership with DoorDash marks an important milestone in Klarna’s expansion into everyday spending categories,” said David Sykes, chief commercial officer for Klarna.
“By offering smarter, more flexible payment solutions for groceries, takeout, and retail essentials, we’re making convenience even more accessible for millions of Americans,” he added.
Experts at CNN, however, disagree with this assessment.
Americans have recently accumulated an increasing amount of debt. According to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, total debt levels rose 0.5% to $18.04 trillion in the fourth quarter of last year. According to the report, the percentage of households falling extremely overdue (missing a payment for 90 days or more) on their auto loans and credit cards has reached a 14-year high.
What’s more, according to Adobe, BNPL usage “hit an all-time high” during last year’s holiday shopping season, resulting in more than $18 billion in online spending, a roughly 10% increase over the previous year. The idea appeals to young, cash-strapped consumers trying to stretch their paychecks further.
And according to Kansas City Federal Reserve research, BNPL providers generate money by charging merchants between 1.5% and 7% of the transaction fee. According to RBC Capital Markets research, online BNPL offers increased average ticket sales by 30% to 50% while increasing the share of clients who made a purchase.
