Paying For It: How Worried Should We Be About The Rise Of Buy Now, Pay Later?

If you decide to buy something from the clothing retailer Boohoo you will be presented with multiple payment options. I am looking at a maxi dress. It costs £40. I don’t have to pay all at once, the website tells me. If I want, I can pay for it in instalments via a variety of buy now, pay later (BNPL) services. With Klarna I could split the cost over three monthly payments of £13.33. With Clearpay I could do £10 every two weeks. With Laybuy it would be six weekly instalments of £6.67. And with something called Zip it would be four payments of £10. 

Once a niche form of credit, BNPL payment schemes have exploded in the last few years. They are available at retailers like Boohoo, H&M, ASOS, LookFantastic, Cult Beauty and Arket. Beyond the checkout of your online shopping basket, BNPL is everywhere. Generally, it is aimed at women in particular. According to the Financial Conduct Authority (FCA, the conduct regulator for financial services firms and financial markets in the UK), 75% of BNPL users are women, 25% are aged 18 to 24 and 90% of transactions involve fashion and footwear. While researching this article I found that you can BNPL your grocery shop and there are even some cosmetic clinics where you can BNPL your Botox. 

It tracks that BNPL providers have gone above and beyond to reach women – a coveted demographic for marketers because of the endless potential to sell us things we don’t need but believe will make us feel and look 'better'. Industry leader Klarna has joined the British Fashion Council as a patron and Clearpay is a headline sponsor of London Fashion Week, which started at the end of last week. BNPL marketing has been associated with Love Island and women’s publications – including the one you’re reading right now. 

Reflected glory – surrounding yourself with well-regarded individuals and companies – is an age-old PR technique. It is reputation management 101. By positioning BNPL as a payment method as opposed to borrowing, these companies gloss over the fact that users are, technically, amassing debt. 

For this reason, BNPL advertising tactics have come under fire and Britain’s regulator, the Advertising Standards Authority (ASA), has taken action. It has removed BNPL adverts on more than one occasion. Last year it banned an ad for DivideBuy for "irresponsibly" suggesting that BNPL was "the smarter way to pay" and banned another ad for Currys PC World, for similarly being "irresponsible" in promoting BNPL as a way to pay.

Speaking to Refinery29, the ASA said: "We have strict rules regulating the advertising of delayed payment or 'buy now, pay later' services. Ads should not mislead, including by omitting relevant information, and should flag relevant limitations and qualifications. Offers of financial products should be set out in a way that's easily understood by consumers and ads should make it clear that delayed payments are a form of credit. They should not be irresponsible, or encourage consumers to spend beyond their means."

The ASA added that the advertising of BNPL is a "priority area" and said that it is "currently carrying out a proactive monitoring exercise of advertising across the BNPL sector in order to identify any consumer protection issues with a view to launching investigations in the next few weeks and taking enforcement action where necessary."

Nonetheless, ​in a society that tells you that your worth is intrinsically linked to how you present yourself and, therefore, what clothes and homeware you own, it is perhaps no surprise that consumers are getting stuck in anyway. Last year, a report from money.co.uk entitled "Shop Now, Stress Later" found that UK consumers now owe an average of £244.37 per person to BNPL services. The same report also found that 18 to 24-year-olds are more likely to use BNPL services (54%) than a credit card (49%). A 2022 survey of 2,972 Refinery29 readers found that 39% have used BNPL at some point. 

To some, BNPL services are just the latest iteration of credit products designed to lure people into debt by getting them to buy things they can’t really afford. To others, including Klarna, these schemes are progressive forms of credit which should be considered no different from traditional loans and credit cards. Klarna has even run a millennial pink billboard advertising campaign arguing that younger generations are good with money, in part because they use BNPL. "Consumers want to bank, pay and shop in innovative and new ways," says Klarna who have also said they support any regulation of BNPL which might come in the future in a bid to get ahead of it and ward off criticism.

So who’s in the right here? Is BNPL the democratisation of credit which enables young people to live the life they want to live in a world where everything – from clothes to food – is becoming more expensive due to inflation and the cost of living crisis? Or is it a slippery and exploitative financial slope aimed at the same generations which have experienced stagnating wages and higher barriers to accessing credit since the global financial crisis of 2008? 

Thirty-year-old Charlie* from southeast London remembers the first time she used a BNPL service. It was April 2019 and she had become "obsessed" with the idea of "refreshing" her wardrobe. "I remember ordering some clothes from & Other Stories," she says. "It came to about £90 in total."

Since that day in 2019, Charlie has used BNPL services around 30 times. "I bought absolutely loads from H&M during the pandemic, including comfy working from home leggings, seamless underwear, swimwear and other basics," she explains. "But I have also bought much more expensive clothes such as a jumpsuit and holiday dresses from Abercrombie & Fitch. I’ve even used BNPL to pay for my protein powder."

Today, Charlie earns £52,000 a year and can afford to pay for essentials as well as the odd luxury item. She didn’t need to use BNPL but she found it convenient. "It definitely encouraged me to shop more than I would have otherwise," she reflects. "And it has caused me problems – I would forget that I still had outstanding payments and not take them into account when using my debit card. This meant I would have to delay payments in a panic because I kept going into my overdraft."

For this reason, Charlie has now stopped using BNPL altogether. "Over Christmas I decided to do 2022 as a 'no clothes year' and I feel freedom already. I realise now that I felt shame when shopping with BNPL. I knew I couldn’t afford the clothes but I couldn’t stop. I didn’t even tell my partner what I was doing. I think he just thought I’d gone a bit mad with my money," she says. "I feel free now, like I have broken the shopping cycle and I no longer feel like I 'need' new things all the time, like I did before."

Consumer advocates have been concerned for a while. In 2021 Citizens Advice warned that BNPL borrowing can be like quicksand – easy to slip into and difficult to get out of. In a report entitled "Buy now, pay later: what happens if you can’t pay later?" Citizens Advice found that one in 10 BNPL shoppers had been chased by debt collectors in the last year. That number rose to one in eight young people. It also found that BNPL shoppers were charged £39 million in late fees in the year running up to the publication of the report. 

In theory, BNPL is all roses unless you miss a repayment, incurring charges and damage to your credit record. On balance, now that she's out the other side of her spending spree, Charlie’s view of BNPL is negative even when repayments are made. "I think it fuelled temptation for me," she adds. "I have never overspent or bought as much in my life as I did when I got access to BNPL services. It made overconsumption so easy."

These sentiments were echoed by the majority of Refinery29 readers. While 86% of respondents to our survey have never missed a BNPL payment and run into trouble with it, 68% said they do not think BNPL is a good thing. 

Another young woman, 27-year-old Emily* from the Midlands, told Refinery29 that she has now stopped using BNPL services. "It encouraged me to shop more than I ever had done before without even thinking twice about it," she said. "It was always clothes I bought, mainly things I didn't need (and some things I've never worn). It encouraged me to add extra things to my basket that usually I'd be rational about and think it was too much, but I knew I could just use Klarna [to pay]."

In one shopping binge, Emily recalls spending over £180 on holiday clothes for a 10-day trip that she already had clothes for. On another, she remembers splurging on "over £250 worth of cheap quality clothes in the space of four weeks" because she was in lockdown and bored.

"I was definitely addicted to the feeling of having 'new things' and receiving parcels in the post," Emily reflects. During the worst bits of the pandemic she thinks this was because "there wasn't a lot else to do".

Shopping has always been a fantastical exercise. I remember being a teenager and wandering around the London department store Selfridges during a sale in the mid 2000s and seeing tongue-in-cheek posters which aped the American artist Barbara Kruger, featuring slogans like "I shop, therefore I am" and "Buy me, I’ll change your life". 

On more than one occasion I have bought into the idea that a new dress/lipstick/pair of shoes could pull me out of the despair of a breakup or help me get a job I want. Fortunately, in my early 20s, credit cards were not so accessible because they require a credit check, which BNPL (as things stand) does not. By the age of 27 I had still managed to amass thousands of pounds in credit card debt. I genuinely dread to think what might have happened had I had access to BNPL. 

BNPL providers argue that their services do not impact your credit rating unless a payment is missed. However, as Refinery29 reported in 2021, young women are being turned down for mortgages because they have used BNPL and some lenders believe this suggests that it would be a risk to lend money to them. 

Until now, BNPL has been an unregulated financial product because interest is not charged. The lack of formal scrutiny of BNPL services to date has prompted some members of parliament, like Labour's Stella Creasy, to compare the sector to payday loans. More than 70 cross-party MPs said BNPL could be "the next Wonga waiting to happen".

Oversight appears to be coming. In February 2021 the British government announced its intention to bring unregulated, interest-free BNPL products into regulation, given what they saw as the potential risk of consumer detriment highlighted in the FCA publication "The Woolard Review: A review of change and innovation in the unsecured credit market". 

Speaking to Refinery29, a spokesperson for the Treasury said that steps towards regulation were being carefully considered. 

"Buy now, pay later can be a helpful way to manage your finances so it’s important that regulation is balanced and proportionate, ensuring that customers are given appropriate protections," they explained. "We are considering the most effective way to bring these products into the scope of regulation and are progressing this work as quickly as possible. Our consultation on policy proposals closed on 6th January and we are now reviewing responses and considering next steps, including timings."

So it seems that even the Treasury thinks that BNPL can be "helpful" in some instances. Refinery29 asked the FCA what its position was on this.

An FCA spokesperson told Refinery29: "Buy now, pay later products need to come into regulation. It is vital that the law, which sets our remit, adapts as the market innovates, so new products and services develop in a way that benefits consumers and that action can be taken to prevent harm."

They added: "We will consult on what our rules will be as soon as the government has decided which firms and activities will be regulated. We are already working on what our regulation of these firms will look like and considering carefully what consumer protections are needed."

The future of BNPL, then, is up for grabs but at its core it is still a way to encourage people to get into debt. 

Before BNPL became so mainstream, there was store credit and similar credit products like "rent to own" were the preserve of companies like BrightHouse, which offered sofas, electronics and domestic appliances on hire purchase arrangements, largely to those who couldn’t afford to pay upfront or get credit elsewhere. 

In 2017 the FCA said that BrightHouse had not been a "responsible lender" and ordered it to pay 249,000 customers £14.8 million in compensation because they had signed up to "unaffordable" lending arrangements. In March 2020 the company collapsed. 

Unlike BrightHouse, crucially, BNPL is usually interest-free unless a payment is missed. As an iteration of deferred payment, BNPL markets itself as aspirational, disruptive and even progressive. The sector is the playground of fintech 'disruptors' such as the Swedish firm Klarna, Clearpay and Laybuy, which initially offered consumer credit in exchange for commission from fashion, beauty and homeware retailers. PayPal has also entered the ring with PayPal Credit and, in late 2021, neo bank Monzo joined the party with its Flex scheme – a BNPL service with a £3,000 upper limit. Another fintech company, Revolut, is set to enter the BNPL market at some point in the near future. 

Last autumn, Goldman Sachs acquired a BNPL fintech company called GreenSky for $2.2 billion. GreenSky wants to focus on spreading the cost of home improvements with loans. And at the end of 2021 it was reported that behemoth retailer Amazon and high street bank Barclays were joining forces to allow Amazon customers to spread the cost of certain purchases of more than £100 over several equal instalments, with terms ranging from three to 48 months.

Like it or not, even with regulation on the horizon, BNPL is growing. What happens next will depend on the strength of the regulation signed off by the Treasury. It has never been easy to talk about debt in a capitalist economy powered by consumerism. Charlie noted that she felt "shame" at her borrowing. However, with inflation reaching record highs – beyond anything younger generations have experienced since entering early adulthood – it's going to be more vital than ever to find ways to talk about it. The question when we talk ought to be this: is finding new ways to get people into debt to buy things that they can't pay for upfront the answer to rising living costs? Is this helping consumers or propping up retailers?

If it’s not BNPL causing a stir, it will likely be something else because financial services rely on encouraging people to borrow in order to make money. But as Charlie, Emily and I have learned, just because you can buy something on credit doesn’t mean you should. One way or another, you will end up paying for it.