How it worksBusinesses offering customers this service let them delay payment for their purchase, often by a month, or offer them the option of paying their bill in a series of small amounts, interest-free and over a number of months. The likes of Klarna, Clearpay and Laybuy (the latter who Real Business interviewed last year), are the main players in this brave new payment provider world. All three said 2019 was their best year in the UK yet, where they signed up millions of new customers. Advocates for this new service say it empowers the consumer, allowing them to purchase items they might not have been able to afford upfront before; it’s already become popular with younger buyers who don’t want to be tied into strict credit arrangements. But that’s not all, consumers in the 30+ market are liking this form of online payment too, as they can spread out the financial impact of their purchases.
Empowering or a debt burden?Speaking to the BBC, Laybuy co-founder Gary Rohloff commented on the advantages of interest-free payment options for consumers, saying: “we’ve had families write to us thanking us for being able to afford raincoats at the start of winter because they couldn’t afford to buy coats in one hit but can afford smaller payments over six weeks.” Rohloff also said the average order with ‘buy now, pay later’ is higher than it is through other payment options, making it clear why major retailers such as JD Sports, Urban Outfitters and Pretty Little Thing are working with these providers. Fully integrated with affiliated retail websites, consumers can opt for these alternative payment plans as easily as if they were paying in the ‘traditional way’, which probably explains the higher purchasing order.
Good for retail, good for consumers?While the main source of capital for these payment providers is the money they make from associated retailers, they do hit late-paying consumers with fees. While a person with steady and regular income is the ideal consumer for these payment providers, there is a risk that those without these resources could get carried away with the ease of the purchasing system, leaving them with mounting late payment debts. At their best, these new payment providers are giving a stalling retail sector a lifeline, allowing empowered customers to make more purchases without the financial pressures of large upfront costs or interest payments. As of yet, financial regulators have no plans to investigate ‘buy now, pay later’ businesses. However, anti-debt crusaders, including debt charities, have voiced their intention to keep an eye out on these businesses to see if they add to the consumer debt-pile.
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