New figures for ITV’s Tonight programme show an almost 2,000% increase in online traders offering ‘Buy Now Pay Later’ credit since January 2020.
The findings are from digital intelligence platform SimilarWeb.
Across the UK, lenders and spenders are creating the fastest growing retail trend in recent memory. Shoppers get to pay with no interest instalments as firms like Klarna, Clearpay and Laybuy operate in this growing sector.
Buy Now Pay Later is now estimated to have attracted 17 million customers in Britain.
The trend is welcomed by many consumers as a convenient way to spread payments, especially in this year of financial squeeze - but there are warnings from debt campaigners.
Falling behind with repayments can often lead to penalty fees, damage to credit scores and even to debt collectors being involved.
Chloe Porter was in tears when she told ITV’s Tonight programme how she ended up thousands of pounds in debt, half of which was down to Buy Now Pay Later.
She said: “You get into the cycle of doing it, rather than thinking of saving for a couple of weeks and buy it - you just get into the habit of: 'Oh well, I’ll buy it now and I’ll pay for it later.'
"It's just a dangerous trap to fall into”.
Much of the concern about this form of credit is because it is largely unregulated.
With other forms of borrowing, such as credit cards, there are strict rules on how lending is offered, but there are relatively few rules for Buy Now Pay Later.
Richard Lane, from the debt charity Step Change, said: "We see lots of Buy Now Pay Later being really aggressively marketed and a big part of the narrative around it has been: don’t wait till payday, you can have it now.
"That really worries us because actually people should be encouraged to be spending time thinking about their finances and thinking about what they can afford”.
Debt campaigners want new rules to require more prominent warnings about the risks of taking on this type of debt.
Buy Now Pay Later lenders are able to offer interest-free deals because they make a large chunk of their income from retailers.
Merchants pay commissions on every sale and are happy to do so because there is evidence that customers using Buy Now Pay Later spend more than they otherwise would.
One trader, Adam Watson, of Hollywood Mirrors in Brighouse, told the programme: “The customer spends more, people are spending at least £20 more per order."
Lenders say Buy Now Pay Later is far lower risk than many other forms of credit because it is interest-free, short term and usually used on small purchases.
Richard Rohloff, who heads the Buy Now Pay Layer firm Laybuy, said: “Credit products come with responsibilty on the borrower and we spell that out.”
Damian Kassabgi of Clearpay told Tonight: "We keep debt very, very, very low. We understand when a consumer has stopped paying so we pause the account and we don’t increase the limit.”
Klarna said they assess a customer’s eligibility to payback with each and every purchase, so only lend to people who can pay back.
Officials are now working on new regulations for Buy Now Pay Later which are likely to include requirements for robust affordability checks and an independent complaints process.
The way we shop is changing fast and many believe it’s now time for regulations to catch up with Britain’s Buy Now Pay Later boom.
Buy Now, Pay Later? will air on Thursday, February 3 on ITV1 at 7:30pm.
For debt and spending advice, get in touch with the below charities:
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