We spend almost £1bn a month through retailers’ spread-the-cost payment schemes. But many borrowers find themselves missing payments, covering instalments with credit cards – and using the schemes to pay for food and other essentials. Is online credit spiralling out of control?
When Emma was shopping online for clothes or makeup, and saw the option to pay later on the checkout page, “it sounded great”, she says. “I thought: ‘I can just pay this off when I get paid.’ But I quickly realised what I racked up was not realistic to pay off in a month, especially not when all of it is due at the same time.” Before long, she owed £900. She now has to pay £300 within the next few days, and doesn’t have it. She started using buy now, pay later on clothes, but once she was in a cycle of paying off previous months’ purchases with each payday, she was soon using it for essentials such as groceries. Emma says her limit was increased without her knowledge and therefore she was spending more than she thought she was. “I always assumed I was within my limit. I didn’t consider that the limit had actually gone up.”
Buy now, pay later (BNPL) is booming, even as financial experts are warning of growing pressure on the business model, amid consumer belt-tightening and greater regulatory scrutiny. Go to the websites of many retailers – including Marks & Spencer and online fashion companies such as Asos – and they will offer a chance to “spread the cost” through companies such as Klarna and Clearpay, or through their own longstanding schemes (such as those offered by online retailers Very and Littlewoods). The number of retailers that Klarna, a Swedish company and one of the biggest BNPL operators in the UK, works with has risen 59% to 22,000 in the past year. Apple is about to enter the BNPL market in the US, giving users of Apple Pay the chance to spread their payments over four interest-free months, PayPal also offers it, and UK banks are joining in – Barclays has a BNPL deal with Amazon, NatWest launched a BNPL scheme in June and later in the year, Virgin Money is launching a BNPL scheme.