What Everyone Needs To Know About Buy Now, Pay Later Schemes

For many of us, our financial knowledge is not where it should be. It's not really our fault. Not only was it skipped over at school but studies have shown that the way women are talked to about money growing up makes for a complicated relationship with cash. One in three young women don't expect to be debt-free until they are 40.

Luckily, these days there is a whole host of financial whizzes who have decided to fill in the gaps for those of us who missed out. From the excellent Money Medics to Clare Seal of My Frugal Year, Instagram alone is full of brilliant teachers who can help you get to grips with understanding everything money.

Alice Tapper started Go Fund Yourself in her mid 20s as "a response to the lack of financial education in schools which has left so many of us confused and head-in-the-sand when it comes to money." She says she wanted to create a resource which made personal finance and financial news relevant and even – whisper it – entertaining. "I’d say I’m a self-confessed finance geek," she laughs.

On Go Fund Yourself, Alice produces free (free!) masterclasses and articles which take you through all that stuff that you probably should have learned in school instead of doing the Tudors seven years in a row. Think pensions, mortgages, ISAs and all the other things you push to the back of your head going, "Yeah, I'll get into that one day, but today is not that day."

Now, Alice is taking buy now, pay later (BNPL) schemes to task. These schemes, which are available across plenty of your favourite online retailers, allow customers to split the payment for their purchases across several weeks or months, sometimes charging interest, sometimes not. While Alice isn't campaigning for the end of BNPL schemes (used well, she believes they can be a bonus to savvy shoppers), she does want a few things made clearer to consumers because when BNPL schemes go wrong, they have the potential to cause the shopper financial damage.

The most famous BNPL scheme is Swedish company Klarna, which you probably recognise from the websites of many famous high street brands. Klarna recently launched a campaign of its own, encouraging consumers to shop more mindfully. "Do I love it?" the campaign urges customers to ask themselves. "Will I use it? Is it worth it?"

However, with a looming recession (another one) and young women predicted to fare worse than any other demographic, Alice wants to make sure that we know exactly what we're getting into when we use BNPL schemes so that we're not putting ourselves in further debt. We caught up with her to hear all about what she's campaigning for.

"So what the campaign isn’t saying is that BNPL products should not exist," Alice explains. "They can be useful and used well." Instead, she says, her campaign is calling for regulation and clarity. "As it stands, because some BNPL products don’t charge interest, they fall outside of the Financial Conduct Authority's (FCA) regulatory remit. This means that unlike traditional credit products like loans and credit cards, there is no guidance around how they should be marketed to consumers; there is no requirement for certain information to be included at checkout and in adverts for example. This means that some consumers, particularly those who might be younger or more vulnerable, are getting themselves into financial difficulty."

The coronavirus pandemic has led to widespread financial uncertainty. With 9.3 million people on furlough and 650,000 fewer workers on payrolls, the future for many young people looks particularly bleak. At a time when we should be cautious with our money however, a report from Compare The Market claims that nearly a fifth (18%) of UK shoppers have noticed more BNPL plans being offered to them since social distancing restrictions took hold – a proportion which shoots up to 33% among Generation Z. "This points towards the exploitation of people’s vulnerabilities right now; pushing fast fashion at a time when many probably can’t afford it or don’t have long-term financial security," explains Alice. "There’s always a risk that shopping is used as an ‘emotional fix’ and I’m sure buy now, pay later has enabled that for some consumers, particularly at a time like this."

Alice claims that the marketing for many BNPL schemes is "unquestionably gendered". She points to this ad for Klarna, introducing Snoop Dogg as an investor. "This is deeply concerning when insolvencies among young women are growing faster than in any other group, according to an analysis of ONS data by UHY Hacker Young. Klarna also markets heavily alongside brands with a primarily female customer base." Klarna, for their part, say they do not specifically target women or young people and say that the average age of their consumers is 33.
 
"This is not about revoking the need for personal responsibility," Alice says firmly. "Personal responsibility is a good thing but you can’t expect good decisions from consumers who aren’t being told about the perils of bad decisions."

The lack of clarity is Alice's main worry. Because some BNPL companies fall outside of FCA regulations, Alice says that they don’t have to tell you upfront about the possible consequences of late or non-payment. "For example, the fact that Klarna employs debt collection agencies. This means there is insufficient protection for consumers. It means retailers have free rein to communicate as little or as much as they wish to consumers."
 
Alice says she's even come across people who have unwittingly used BNPL because it’s the default payment option on websites. "It simply should not be possible to access credit by accident. Risk wording should be mandatory in adverts alongside better protection and information at checkout." It is worth noting that Klarna specifically differentiate themselves from other, usual payments, "both visually, and in terms of the information the consumer is required to enter."
 
There are, as mentioned, plenty of good reasons to use BNPL schemes. Trying stuff on at home before you buy is useful for sticking to a budget as you're not having money leave your account and then waiting for it to be refunded. Alice notes that this may be particularly useful in this post-COVID world, when some of us might feel less than enthusiastic about trying on clothes in store. 

Yet with 45% of young people who've used BNPL schemes admitting to missing at least one payment, and with Klarna itself stating that businesses which use its services report a 30% increased conversion rate (meaning 30% more customers commit to buy), there's a worry that buy now, pay later might, for all the warnings, actually increase our spending at a time when we need to have a stronger hold on our finances than ever.
 
So far, Alice has collected over 150 stories of people, mainly young women, who have been negatively impacted by buy now, pay later schemes. Some women have used them without realising and then found themselves inundated with late payment letters; others have shared the emotional side of getting caught in an addictive cycle of overspending. "[I've spoken to] women in their early 20s racking up debt in the thousands across multiple buy now, pay later providers. This is compounded by the pressures of social media, Instagram and poor mental health," Alice sympathises. "Oftentimes these are people who might struggle to be approved for a credit card but are still able to use unregulated buy now, pay later products." E-commerce and social media, she says, are becoming inextricably linked and it is therefore important that the products we use when purchasing are transparent.
 
It’s important to be clear that the campaign is seeking regulation across all buy now, pay later products. However, as market leader, Alice says that Klarna "has a responsibility to be more aware of how they are encouraging overspending."

"I made three requests of Klarna," she says. "I’m awaiting a response."

Luke Griffiths, Vice President of Klarna UK told Refinery29 that: "Klarna is for all ages. In fact the average age of our consumers is 33 and in the month of June Gen X consumers (40 - 54 year olds) spent more with us than Gen Z (aged 18 - 23). Our consumers use us primarily for financial flexibility, whether that is to try before they buy or to spread the cost of payment over a number of instalments. 

"Responsible spending is very important to us at Klarna and we undertake eligibility checks every time someone makes an application. By performing an affordability check every time a consumer uses our service, we are taking a more responsible approach to consumer credit than alternatives on the market. Additionally, we recently launched KlarnaSense, to encourage consumers to take a moment to ask themselves, ‘Do I love it? Will I use it? And Is it worth it?’ before making a purchase.”

So what does this mean for you? Your main task is to make sure that you're only spending the money you want to spend, and on things that are within your means.

The best way to do this? Get yourself a budget. It might sound boring but it's going to be of more use to you now than ever. It doesn't have to be fancy; writing down your income and earmarking money for all the stuff you have to pay for is going to give you a far better idea of how much wiggle room you have financially. If you know you've only got £20 extra one month, then that's all you spend – no ifs, ands or buts.

Whether you use your banking app (the pots in Monzo, Starling etc. are great for dividing up your cash into 'can use'/'can't use') or prefer a good old-fashioned spreadsheet, get that budget down, refined and fully sorted in your head. Until that's in place, don't even think of getting more creative with your spending.