Hidden cost OF THE new buy now pay later boom
Promoted by glamorous influencers like Claire as a cure for Covid blues, instant checkout credit is tempting millions of shoppers. But few realise the...
THEY are the glamorous social media stars with the pictureperfect lifestyles that attract thousands of aspiring young followers. Yet their posts are now being investigated by the advertising watchdog over fears they irresponsibly promoted ‘buy-now, pay-later’ credit as a way to feel better in the pandemic.
Business is booming for buy-now, pay-later lenders that allow shoppers to delay paying for goods. But the meteoric rise of the unregulated checkout credit providers in the pandemic is causing increasing concern.
And with Christmas fast approaching after a tough year, campaigners fear hard-up shoppers will be tempted to take on debt they will not be able to pay off next year.
The Advertising Standards Authority (ASA) is investigating four Instagram ‘influencers’ for pushing Swedish checkout lending giant Klarna as a way to lift spirits in lockdown.
One being looked into is Claire Menary’s April post: ‘Thank you @klarna.uk for the simple reminder that getting dressed up can be a total mood booster.’
Aisha Master, wrote a post promoting beauty face masks that was sent to the ASA: ‘A great investment mask, made easier with @klarna.uk. Brighten up your lockdown days by heading over to their page.’
While Instagram user Bradley Harper told his thousands of followers: ‘@klarna.uk helping me get ready for the day ahead in lockdown and lifting my mood!’
And in a video for Klarna, influencer Yasmin Fatollahy told fans: ‘It is so important to stay positive and just have a little bit of fun.’
We contacted all four influencers about the story. Claire Menary did not return our messages, while Aisha Master, Bradley Harper and Yasmin Fatollahy declined to comment.
Klarna admitted to Money Mail that the posts ‘missed the mark’.
Labour MP Stella Creasy, who made the complaints about the posts to the ASA, wants to see buy- now, pay- later firms regulated urgently.
She says: ‘Encouraging people to spend money to make themselves feel better, when many have lost their jobs and the cost of borrowing isn’t clear, is a crisis waiting to happen. This Christmas, these companies will likely have a bonanza, but consumers will likely be paying the price for many months afterwards.’
Klarna avoids conventional credit regulation because it does not charge interest. It now has an unavoidable presence — with hundreds of major retailers offering shoppers the chance to delay payment and split bills into smaller chunks.
Checkout lenders thrive online — particularly with fashion retailers since coronavirus has forced shoppers off the High Street, but Money Mail also found adverts targeting customers in stores.
ONE CLICK AWAY FROM DEBT
MAJOR retailers offering buy-now, pay-later services at the checkout include Marks & Spencer, H&M, River Island, Made.com and Asos. You have to be over 18, and are limited as to how much you can borrow. Online payments firm PayPal has also launched a similar service — spend from £45 to £2,000, and pay in three monthly interestfree instalments.
But there are fears shoppers, especially younger ones, are encouraged to spend more than they need, and have inadvertently taken credit without realising because retailers could set Klarna as the default for payments. Klarna has just stopped retailers from using its service as the go-to option for new customers.
LACK OF A PROPER CREDIT CHECK
CHECKOUT credit lenders, which also include Clear pay and Lay buy, make their money by taking a slice from the retailers’ sales.
One aspect of its appeal is that shoppers who want to ‘try - before they - buy’ only have to pay for items they keep. But to offer the short-term loans, firms do not need to do a proper credit check — so previous debt struggles might go unnoticed. The money is later taken automatically from the card you give at the till. Klarna, which now has eight million UK customers, does not charge for late payments, but Clear pay and Lay buy both charge £6 for every instalment missed.
Your credit score could suffer if payment cannot be taken, and debt collectors could be sent to your home.
And shoppers using checkout credit do not have the usual consumer protection as the industry isn’t regulated.
With all the risks, campaigners say they are concerned about marketing credit products to young shoppers — some social media stars fail to make it clear they are advertising potentially risky credit products to their many fans.
Personal finance campaigner Alice Tapper says: ‘It is numbing the pain of spending. There is no question they promote overspending in an unhealthy way.
‘As we approach Christmas, shoppers will be using buy-now, pay-later to purchase presents but many are storing up trouble for the New Year.
‘The “buy- now, worry-later” mindset many of these brands have promoted is extremely dangerous.
‘This, in tandem with the lack of
regulation and the current economic climate has created a perfect storm.’
WILL ACTION COME FAR TOO LATE?
THE Financial conduct authority (Fca) regulator has launched a review into the unsecured credit market, and the committee of advertising Practices recently issued guidance to make it clear shoppers should understand they are being sold a form of credit. Money Mail has found buy-now, paylater firms are using christmas to promote their products. Klarna has launched a christmas competition giving away prizes to followers. While in a post on Instagram, clearpay wrote: ‘Go on, spoil someone this christmas. Gift-now, pay-later’.
Laybuy, which allows shoppers to pay for purchases over six weekly instalments, also posted: ‘Get everything you need for the festive season by paying in 6 with Laybuy.’
Legislation from the 1970s rules that shortterm credit with no interest falls outside of the regulatory remit. It means shoppers using buy-now, pay-later cannot complain to the financial ombudsman, and aren’t guaranteed their money back if anything goes wrong.
Money Saving Expert Martin Lewis has compared the sudden rise of buy-now, pay-later to the explosion once seen with the extortionate payday loan firms.
Last week he warned MPs on the Treasury committee that it was the ‘fastest growing form of credit in the country’ and called for firms to be regulated with ‘maximum speed’.
He said: ‘My issue is that just like payday lenders, it will be too late. We are in an explosion of this type of credit — this is absolutely huge.’
He also criticised Klarna for using social media stars to advertise, adding: ‘This is fundamentally inappropriate for a credit provider.’
Mel Stride, chairman of the Treasury committee, told Money Mail: ‘Many may buy into this credit without fully understanding it comes with risks as well as benefits.’
THE TILL TOLL ON MENTAL HEALTH
RESEaRcH from consumer lobby group Which? found 24 pc of buynow, pay-later customers spent more than they planned, with 11 pc having been hit with late charges.
and 13 pc used buy-now, pay-later inadvertently because it was the default payment at checkout. One shopper said: ‘ It felt like I was tricked into it because the box was already ticked.’
Meanwhile, research by the Money and Mental Health policy institute found 56 pc of Britons thought the checkout credit providers made it too easy to get into debt. It also found 42 pc of those with recent mental health problems said buynow, pay-later had been harder to resist in the pandemic.
chief executive Helen Undy says: ‘Our concern is that it’s very easy to take this credit out — but it’s difficult to keep track of what you’re borrowing, understand all the terms and conditions, or make sure it’s kept to an amount you can afford.
‘Simple steps like giving people the option to opt out of ‘Buy-NowPay-later’ deals, or not making them the default option at checkout, could help people avoid serious financial harm.’
Debt charity Stepchange, has seen an increase in people struggling with buy-now, pay-later loans. Sue anderson, from the charity, says: ‘Bear in mind the main benefit to retailers of offering these services is to sell more goods.’
Jenny Ross, Which? Money editor, says: ‘ Given that many people’s finances are stretched now more than ever, the Fca needs to regulate this market to ensure consumers are not harmed and that action can be taken if these firms are treating customers unfairly.’
BETTER THAN A CREDIT CARD?
BUY now, pay later firms argue their quick and easy loans are a better alternative to using a credit card — despite many card lenders also not charging interest for a short period.
alex Marsh, from Klarna UK, says the firm is a fully licensed bank and would support regulation of its buynow, pay-later products.
He says: ‘ Our branding is not targeted at the young. Klarna is for anyone, over 18, who values convenience and flexibility when shopping. We work with influencers, as they are now part of the marketing mix for many organisations including other regulated institutions — 47 pc of 30- to 49-yearolds are on Instagram.’
a Klarna spokesman adds: ‘ We understand our obligations and take our role as an advertiser extremely seriously, particularly in the context of supporting responsible spending and financial wellbeing in what’s been a unique and challenging year for UK consumers.
‘We perform rigorous eligibility checks on every purchase to make sure customers are protected and not over- extended. any customer whose circumstances change after a purchase and is concerned about their ability to make payments should contact us. We have a dedicated expert team who can provide help and advice and work with the customer to find a solution.
‘In 2020, the single largest marketing investment we made was in KlarnaSense, a campaign to address impulse shopping. We thought long and hard about the text of the posts which were subsequently investigated by the aSa. It was a genuine attempt to recognise the mood of many consumers at the start of the first lockdown. We recognise that while we had the best of intentions, we missed the mark with the four posts the aSa looked into.’
Gary Rohloff, co- founder of Laybuy, told Money Mail the service could help people budget better and spread the cost of things they need but can’t afford to pay for upfront.
He also says he would have no problem with regulation.
a clearpay spokesman says: ‘clearpay works closely with the aSa to ensure our adverts follow guidelines and only promote our product as a budgeting tool to encourage on-time payments. Our business model relies on our customers paying on time as we do not charge interest, and as such our adverts encourage responsible spending.’