Layaway payments taking a new twist

NEW YORK » New kinds of installment plans are offering options to shoppers who may remember layaway as something their parents or grandparents used.

The payment businesses, many of them startups, are working with companies like Urban Outfitters or Expedia to give shoppers an alternative to traditional credit cards. While layaway plans were getting used again during the Great Recession, their popularity has faded as shoppers don’t want to wait for their purchases.

The payment firms say they appeal to younger shoppers. “For them, it’s more like a budgeting mechanism,” says Nick Molnar, co-founder and CEO of Afterpay. “It means it’s more manageable to them.”

Afterpay, which launched in the U.S. in May, hopes to replicate its adoption in Australia, where it says it processes more than 25 percent of all online fashion and beauty transactions. Another company, Affirm, claims 1.5 million active U.S. users. Even American Express is jumping into the game.

Shoppers who use the new payment options are likely to spend more compared to when they use traditional forms of payment, says Tyler Higgins of the consulting firm AArete. The installment plans may also help stores prevent abandoned carts by offering other ways to pay. And many of the payment firms take on any fraud risk, says Forrester Research’s Brendan Miller.

But experts caution the new plans could also be encouraging