Buy Now, Pay Later Is an Innovation That’s 200 Years Old: Stephen Mihm

Everything old is new again. Witness fintech giant Square’s recent acquisition of Afterpay, a company that enables consumers to buy now and pay later via regular payments administered by the Australia-based company.

Afterpay appeals to young millennials eager to move beyond conventional forms of financing such as credit cards. This may seem cutting edge to the youngsters, but it’s nothing but a reboot of a credit system their great-great grandparents knew and loved: the installment plan.

Imagine, for a moment, a world without credit cards and other familiar forms of consumer financing. If someone two centuries ago wanted to purchase a big-ticket item such as a plow or cart, they had to front the full purchase price or borrow from family and friends.

That started to change in the early 19th century. According to historian Lendol Calder, the first forms of installment credit appeared in the U.S. at that time when a furniture dealer in New York City began selling goods this way.

The first installment plans, like most that followed, rested on a legal foundation that structured them as a formal contract. When a buyer failed to make a payment, the seller could repossess the goods. Eventually, courts also permitted sellers to retain whatever payments had been made.

But installment plans remained unusual until the middle of the 19th century, when a growing number of essential — and expensive — consumer goods came into the market. These included mechanical reapers like the ones invented and marketed by Cyrus McCormick. Even the cheapest such machine was well beyond the price range of the average farmer. But their appeal was obvious: they cut harvesting time by 95%.