Buy Now, Pay Later schemes are a great big scam
This week on the Boshemia podcast, I talked about how Buy Now, Pay Later (BNPL) schemes have rocketed in popularity over the past decade. The soft, millennial-pink ‘K’ logo signifying Swedish BNPL giant Klarna has become an instantly-recognisable mainstay in the little panel of ‘accepted payment methods’ on all your fave online stores. And if it isn’t Klarna, it’s ClearPay, AfterPay, LayBuy, Paypal Pay in 3, Monzo Flex… the schemes are everywhere. Last year, BNPL purchases quadrupled to £2.7 billion. That’s bananas.
I want it right now
Now, the concept is incredibly enticing – and that’s the point. Spreading the cost of a good quality, waterproof winter coat (good god why are they so expensive 🥵) over three or so months sounds dreamy and makes otherwise unaffordable purchases feel manageable and available to you right now. Unfortunately for us, BNPL schemes have hit on the perfect nerve for young people in our current society. They enhance the addictive “want it right now” culture that has been slowly baked into us through the rise of conglomerates such as Amazon (boo hiss), but take it one step further. Not only can you have it the next day, but “it” is three times more expensive than you would otherwise have paid. Your brain does a number on you – mentally, you’ve only spent £45. But now you’re spending the same £45 for the next two months. Fine if you’ve allowed for it, not so fine if you haven’t.
The danger here is regularly sliding into the habit of making a slew of purchases that are outside of your spending range. Those payments stack up, and if you haven’t properly budgeted the spread-out cost into your budget for the next two months, it can bite you in the butt and leave you snowed under by concurrent demands for big chunks of cash month on month. That’s a one-way ticket to Debtland, the most unfun amusement park on the planet. Around 50% of BNPL borrowers are in the 25 to 36 bracket, and 25% are aged between 18 and 24. That chunk of cash-strapped Millennials are at high risk of making it even worse for themselves, and are also incredibly vulnerable to repeatedly falling for schemes which claim to make things easier.
Debt, but make it a meme
Which brings us to the way that these schemes are marketed. This actually boils my blood. Credit lenders have a legal (and moral) obligation to be transparent about the risks associated with borrowing. Since it’s the most well-known, let’s take Klarna as an example (but they’re all pretty much equally guilty). Klarna’s Instagram feed is majority memes, riffing on pop and Millennial culture and generally vibing in a wannabe-Love Of Huns manner (they could never). Nothing about their marketing or internet presence screams “this is credit, this is a debt”. It’s pink, fluffy and fun. That’s not to say financial services brands can’t be different or fun, but there’s a certain responsibility to communicate the levity of the service too. You can educate around personal finance and budgeting AND have pink branding.
It even goes as far as the sign-up process. There is almost no application process at all. It’s frighteningly easy to take out a BNPL loan. In fact, you could probably sign up for it by accident and have no idea that you’d taken out credit.
Unregulated
What is frankly shocking about these schemes is that, despite being essentially a credit lender and functioning in a way that affects your credit score, they are currently unregulated in the UK. The Financial Conduct Authority (FCA) is responsible for regulating financial services firms, which essentially means that they advocate for the client by enforcing codes of conduct and legal requirements. If you’ve got an issue with your bank, you can go to the FCA. If a creditor is screwing you over in a highly illegal way, you can go to the FCA. But let’s say you buy a £300 pair of trainers using Klarna – you try them on, decide you don’t like them and send them back. You wait for your refund, and it never comes. You get in touch with Klarna customer services repeatedly, and the issue isn’t resolved. If Klarna were regulated by the FCA, you could go to them for help. As it is, you can’t, and you’re now £300 down.
In February 2021, the FCA announced that they were finally going to move to regulate BNPL firms. This is a really positive move, but long overdue.
But I like it :(
Yeah yeah, I know, it’s helpful to spread the cost sometimes and we can’t all access a credit card. If you’ve really gotta do it, look into whether your bank has cost-spreading options. But honestly, stay well away.
OpenMoney UK has a campaign called YOPO – You Only Pay Once – and Emma Edwards @the.brokegeneration is absolutely fab at educating on personal finance in a really non-preachy, accessible way (and shares my hatred of BNPL schemes so automatic win there).
Catch us talking about BNPL schemes more in detail on the latest episode of the Boshemia podcast, What Else Are We Mad At?