Image: Who's a Good Shopper, Klarna. Credit: 72andSunny
With consumers now given the option to buy now, pay later, Elizabeth Bennett explores how delayed payments have the potential to encourage shoppers to spend without considering the consequences to either their bank accounts or the planet.
Forget forking out the money for your clothes at the checkout, nowadays shopping online often means you can postpone paying for weeks and sometimes months. If you head to boohoo.com right now and choose the Ditsy Floral Ruffle Sundress (reduced from £22 to £16.50), you’ll be given three options to pay on the main product page and none involve spending any cash. “Pay £5.50 in 3 monthly installments with Klarna, pay £4.14 every two weeks with ClearPay or pay £2.75 every 6 weeks with LayBuy,” the buttons below the ‘select size’ bar flash at you.
Klarna, ClearPay and LayBuy are just some of the financial companies selling Buy Now Pay Later products (BNPL for short) which offer customers the chance to delay payments or spread out the cost of purchases. Over the last five years they have soared in popularity with payment processors Worldpay finding these schemes are growing at a rate of 39% a year.
Looking at it in terms of consumption, BNPL schemes make it even easier for consumers to purchase clothes without much consideration. Often by simply entering an email you can complete your order and not worry about payment until further down the line. For fashion retailers, these payment plans are excellent for business with Klarna telling potential partners via its website: “A customer's order value increases by 55% when shopping with instalments.” In fact, Comparethemarket.com research found that 40% of shoppers say these schemes encourage them to spend more than they usually would.
Used by all the big fast fashion players - including the Boohoo Group, Arcadia and ASOS - these BNPL schemes arguably reinforce the idea that clothes can be bought flippantly. Considering the huge amount of cheap clothing that goes to waste (according to waste charity WRAP, more than 300,000 tonnes of used clothing goes to landfill in the UK every year), from an environmental standpoint this isn’t good news.
However, beyond these concerns, BNPL schemes are also often misleading to consumers. With their Gen Z friendly language and social media marketing, BNPL products don’t look like finance schemes. However, they are simply a form of credit (much like paying for something on a credit or store card) and don’t come free from risk.
“Buy-now, pay-later services are increasingly being marketed purely as a source of convenience, but it’s important to recognise that the main benefit to retailers of offering these services is to sell more goods. The convenience to the consumer may be real, but so is the financial commitment and that message is not being given as much prominence as it should be,” Sue Anderson, Head of Media at debt charity Step Change, told Eco-Age.
Image: Who's a Good Shopper, Klarna. Credit: 72andSunny
Alice Tapper, founder and author of Go Fund Yourself, a book, online platform and community which makes personal finance relevant and relatable, recently started a campaign called #KlarNAA to raise awareness of this issue after receiving numerous messages from people with negative experiences using these payment plans. “I did some digging and found that it was a regulatory issue. Lots of these products are not regulated in the same way credit cards are,” she explained. With many of these schemes offering the customer the option to delay payment without paying interest, they are not seen by law in the same way as other similar financial products.
“I’ve heard stories of customers making purchases via BNPL schemes without even realizing it, others who have been charged with fees for late payments and some who have seen it negatively impact their credit card score. In extreme cases people have had to deal with debt collectors,” she elaborated. Tapper’s campaign is calling on Klarna (and other BNPL schemes) to do two things: offer customers more information about what they are signing up for at checkout and tighter regulation around the advertising and promotion of these products (sign the petition here).
“These services must give clear, plain English information for customers, and regulators need to keep a close eye on how well consumers understand the types of services they’re being offered at the online checkout – especially those that could have the potential to see them build up debt,” Anderson concurred.
Of course, if regulated correctly and presented to the consumer in a clear and transparent way, BNPL schemes don’t necessarily always need to be a bad thing. In the sustainable fashion space, where clothes are good for people and the planet inevitably cost more money, they can be a useful option. In fact, brands such as Birdsong and A Day’s March both offer Klarna as an option for customers while designer resale sites like Vestiaire Collective and The RealReal offer payment plans.
“We asked our customers last year which feature they'd like most on our new website and they overwhelmingly voted for Klarna to help them finance more sustainable purchases,” Sophie Slater, co-founder of Birdsong, told us. Slater is aware of the potential risks of such financing but hopes with the slow and considered approach to shopping encouraged by Birdsong (all clothes are made-to-order), customers would implore a similar approach when using a BNPL scheme. “I think we’re so used to buying electronics and sofas in installments doing the same for purchasing expensive clothes makes for someone without huge amounts of disposable income,” she added.
For those feeling priced out of the ethical clothing market, BNPL schemes can make buying a sustainable investment piece more affordable and accessible. However, when used simply to build up an even bigger basket at a fast-fashion store, they fuel an already flawed system of consumption and often leave customers struggling with more than they bargained for.
Read Elizabeth's investigation into the LostStock charity scheme and the impact this has for garment workers in Bangladesh.
Discover the true impact of our online shopping habits on the environment.
Learn what a post-growth economic model could look like for the fashion industry.