Buy now, pay later discounts drive holiday spending

Online spending is expected to jump 8.4% to $240.8 billion this holiday shopping season, largely driven by a surge in discounts and the popularity of buy now, pay later services, according to Adobe's latest figures. 

This estimate surpasses the $221.8 billion shoppers spent online during last year's holiday shopping season, which spans from Nov. 1 to Dec. 31, Adobe Analytics reported Wednesday.

The holiday season, according to Adobe lead analyst Vivek Pandya, "has been reshaped in recent years, where consumers are making purchases earlier, driven by a stream of discounts that has allowed shoppers to manage their budgets in different ways." 

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Pandya said that these "discounting patterns are driving material changes in shopping behavior, with certain consumers now trading up to goods that were previously higher-priced and propelling growth for U.S. retailers."

This year, shoppers will see "strong discounts" for as much as 30% off listed prices, convincing them to "trade up" in certain categories such as electronics, appliances and sporting goods. This will contribute to over $2 billion in incremental spending, Adobe estimated. 

At the same time, the buy now, pay later services, which allow consumers to pay in installments, will drive a record $18.5 billion in online spending, up 11.4% year over year. 

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In November alone, Adobe estimates that the flexible spending method will drive $9.5 billion in sales, which would be the largest month on record. However, Cyber Monday is projected to mark the largest day on record for buy now, pay later spending at $993 million. 

According to Adobe's survey, about 39% of millennials will use this payment method, followed by 38% of Gen Z shoppers. 

The primary reason consumers cite for using these services is that it frees up cash and allows them to purchase items they otherwise wouldn't be able to afford.

But while it can help ease cash flow issues, financial experts have previously told FOX Business that there are hidden risks when shoppers rely on the service too much, especially if they are not focused on their budget. 

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For one, while most buy now, pay later options are advertised as interest-free installments that can be paid over the course of a few weeks or months, consumers can still get hit with late fees if they don't have the funds to cover the installments. 

If a consumer keeps missing payments, they could very easily be handed over to a debt collector too, Martha Callahan, certified financial planner at Maryland-based FBB Capital Partners, previously told FOX Business.