Most of us know the frustration of falling in love with something while shopping online only to find our bank balance wanting. In a world of overconsumption and 'see it, want it' attitudes, it might do us some good to step back, save up and think about whether we really need a new pair of boots or another top; but fashion retailers aren’t about to start losing sales over anything as sensible and clear-headed as that.
With their sights set on capitalising upon desire-based snap decision-making, Boohoo just became the latest in a long line of retailers to announce the launch of a buy now, pay later scheme. Partnering with Clearpay, Boohoo is offering its customers the opportunity to "Shop now. Wear now. Pay it in 4."
On any order over £10, customers can select the Clearpay option, breaking their purchase down into four smaller instalments: one at checkout and three subsequent payments at two-week intervals. All of Boohoo’s brands (Boohoo, Boohooman and Nasty Gal) now offer Clearpay as an option at the checkout, joining the likes of Urban Outfitters, Free People, Anthropologie and JD Sports.
The rise of this new breed of buy now, pay later scheme in the UK has been swift. Alongside Clearpay, there is Klarna, whose retail partners include ASOS, Schuh, Acne Studios, Topshop and Gymshark; and Laybuy, which lists the likes of Footasylum and Alexachung on its shop directory.
Unlike the catalogue repayments that I remember from my childhood, these new fintech (financial technology) firms offer completely interest-free repayments and they’re very definitively marketed at millennials and Gen Z, over 60% of whom, Clearpay claims, don’t own a credit card.
When you visit Clearpay’s website, you’d be forgiven for thinking you’re browsing a fashion retailer, not a financial services company. Rather than information about the company itself, you’re greeted with bold fashion imagery and tempting links to 'trending' retailers. A suitably dreamy hero image and header invites you to 'sign up now' and it’s only by clicking on the small grey-on-grey 'how it works' link at the top, or scrolling right to the bottom of the page and clicking through, that you find out what Clearpay actually is. Everything about the site is engineered to make you shop now, ask questions later.
Over on the Boohoo website, a prompt reading 'Buy now pay later! Clearpay!' pops up when you add something to your basket. This is no great surprise; according to Carl Scheible, who oversaw Clearpay’s UK launch, offering the service "results in a 20-30% increase in basket size". The prospect of enticing customers to buy more, while normalising the use of consumer credit for a generation that so far has largely shunned it, must be a very tempting prospect indeed for the retailers who’ve launched buy now, pay later schemes.
In its press release for the launch, Boohoo asserted that it "frequently engages with millennials and generation Z to make shopping easier, allowing them to help plan and budget where possible and encourage responsible spending." But just how responsible is it to encourage young people to enter into debt in order to buy cheap clothes that they likely don’t need, particularly when the very presence of a buy now, pay later option prompts them to buy even more?
With a qualifying spend of just £10 to use the Clearpay option (subject to online approval), Boohoo is not offering help with unmanageably large amounts of money but rather motivating customers to defer even the smallest payments with the help of credit instead of saving.
Sue Anderson, head of media at leading debt charity StepChange has seen the consequences of the rise of such schemes. "Online 'buy now, pay later' services are a growing form of debt among StepChange clients," she says. "It’s all too easy to overestimate what you can afford with these types of services, particularly when the options to pay later or divide payments allow you to defer thoughts of affordability."
Fine art student Lois Hardy has been using Clearpay for around a month, buying about 12 items with it so far. "[Signing up was] incredibly easy," she says. "I honestly think it took me longer to set up an email account than it did to set up Clearpay. There were the terms and conditions etc. highlighted before confirming the sign up but other than that, little to no information."
Hardy concedes that having the option to pay later makes it tempting to buy more. "I started with two or three things in the same order but after that it just felt really easy and I ended up getting carried away, honestly. I get paid weekly, so I rarely have enough money saved to pay out large amounts at one time, so it works quite well for me. But I ended up forgetting how many things I’d ordered and when the payments were scheduled, so I have had a few weeks where a lot more than I was expecting came out."
Agreeing with Hardy’s appreciation of the financial convenience of buy now, pay later schemes, Claire Roach, who runs the Daily Deals blog, says: "I did it online in a few clicks of a button. The buy now, pay later option has really helped me out over the years… I don't always have the cash available to make big purchases, especially in emergency circumstances, so it's been a lifesaver."
But she also agrees that it can be an incentive to buy more. "The downside is I often find myself adding extra things to the basket that I wouldn't normally dream of picking up with cash. I have the mindset of Oh I'll worry about that in six months, which sometimes isn't a good thing," she says.
Consumers' worries about repayments are not unfounded. UK homes now owe an average of £15,385 to credit card firms, banks and other lenders and a new generation of consumers are being enticed to join those already in debt. The breezy language employed by brands and fintech firms, coupled with interest-free repayments, may make the process sound risk-free but all credit comes with some level of risk, and it shouldn’t be downplayed.
If an unexpected payment were to come out of someone’s bank leaving them unable to pay an instalment, Clearpay would apply a £6 late fee and an additional £6 fee if the missed payment isn’t paid within seven days. According to its terms: "For each order below £24, a maximum of £6 may be applied per order. For each order of £24 or above, the total of the late fees that may be applied are capped at 25% of the Original Order Value or £36, whichever is less."
But for someone who needs to use credit to pay as little as £10, even an extra £6 could set them off course, and missing payments could affect their credit rating, making it more difficult to apply for credit such as a mortgage in future. Speaking to a member of Clearpay customer services, I was informed that the company tries its best to accommodate customers if they’re struggling to repay, moving repayment dates or coming to a new, more manageable repayment agreement.
However, they also informed me that if a customer cannot make repayments, their debt may be sold to a collections agency, where late fees and legal fees quickly add up. Having scoured Clearpay’s terms of service, I can find no reference to this, nor is it mentioned on its financial hardship help page. While everyone I interviewed knew that a late fee may be applied if they missed a payment, none knew that they may end up being chased by a debt collection agency.
In Australia, where Clearpay’s founding brand Afterpay Touch launched four years ago, one in four young people use Afterpay and the company accounts for 10% of all e-commerce. This is worrying territory. According to Anderson, young people are a growing proportion of StepChange’s client base. "Under-25s represented 14% of our clients in 2018, with an average outstanding debt of over £6,000. Young people are also more likely to have insecure or irregular income, which can put them at greater risk of problem debt," she says.
While phrases like 'pay when suits you best' and 'love the way you pay' make it sound like the customer is in control, the very insecure and irregular income that prompts people to use the likes of Clearpay in the first place could well lead to falling behind on payments. Once you brush the playful marketing and nonchalant language aside, Clearpay and the like are nothing more than good old fashioned consumer debt and they shouldn’t be taken lightly.