New guidelines to tighten “buy now, pay later” advertising services were welcomed like Klarna — but called for tougher rules to prevent more consumers from falling into debt.
Late payment providers have been asked to revamp their marketing by next March to ensure users are not misled into thinking they are signing up for credit, according to rules published by the Advertising Standards Authority last week.
The eight pages of guidance warned the likes of Clearpay, Klarna, Laybuy and PayPal from claiming that their products never affected users’ credit ratings unless they could prove that it never did.
Nor did it mean that it was suitable for everyone or free of risk, and to make it clear that standard payment methods such as debit cards were available as alternatives.
The advertising watchdog has announced new guidance for companies like advertising services Klarna that allow shoppers to pay for goods after they’ve been purchased
Alice Tapper, an activist who has advocated for a tightening of the sector, called the new ASA guidelines “a wonderful step toward better protecting consumers.”
She said: ‘Some time ago I was really worried because of the lack of transparency about the potential consequences of using these products, particularly credit score damage. One of the main requests in my campaign was for the ASA to tighten advertising standards, so I’m glad to see that.
Her words were echoed by Anthony Morrow, founder of digital financial advisory service Open Money, who said the guidance was “very welcome” but wanted the government to “consider strengthening the Consumer Credit Act to help better protect consumers.”
Open Money has also started a campaign against pay-as-you-go schemes, titled “You Only Pay Once”, encouraging shoppers to only buy items they can pay for in advance.
The sector has come under increased scrutiny over the past couple of years, with vibrant marketing for a new breed of platform like Klarna attracting millions of users — and thousands of retailers signing up for services as providers claim they can get shoppers to spend more.
Klarna, a Swedish company that has become one of the most valuable startups in Europe, reported last week that the value of transactions made through its platform increased by 43 percent in the first nine months of this year to $43 billion, and its income up 37 percent to $742 million. dollar.
The company makes money by deducting any sales made through its services.
Although the trend of buying items on credit in this way is not new, this new type of startup has made such services even more popular, thanks to smart apps, a frictionless check-out experience, and promises of no formal credit agreements or fees.
Buy now, pay later services like Swedish company Klarna make money by taking a cut of shoppers’ purchases. They market themselves to retailers by saying customers will spend more
Concerns are growing that “buy now, pay later” debt is growing.
But there are concerns that the sector is encouraging people to go into debt by spending money they otherwise would not have, with a particular focus on its effects on young people. Some 87 per cent of those surveyed by Open Money said they felt such schemes encouraged people to live a lifestyle they could not afford.
Meanwhile, figures released Monday by Financial Wellness Group, a debt solutions provider, say people in debt to such schemes are becoming increasingly familiar among those who have applied to them for help.
Research from digital financial advisory service Open Money found that some consumers suffered from “buy now, pay later” schemes.
It said 42 percent of new customers in 2020 had BNPL debt and shopped online, up from 28 percent in 2019.
While the average debt was £250, some clients had as many as 10 individual loans.
Deborah Weir, COO of Financial Wellness Group, said: “We are seeing an increasing trend of people getting into serious debt trouble at a younger age – often while still living at home.
In a growing number of cases this has been driven, at least in part, by easy access to credit offered by some online retailers and by ‘buy now, pay later’ lenders.
“This type of lending is particularly dangerous because it encourages consumers to focus on immediate gratification of what they are buying, and to think less about affordability of repayments over the coming months.”
Last month, financial services advisory firm Capco found that 50 percent of 18-34-year-olds surveyed as part of a 2016 survey had missed a payment while borrowing from one of these schemes, and 62 percent said they had spent More than otherwise they would have done.
“Buy now, pay later makes it very easy to take on debt without fully considering how you will pay it off or the implications if you don’t,” said Anthony Morrow.
They are becoming increasingly popular through manipulative advertising and irresponsible encouragement by social media influencers, playing on our fear of losing money to get people into debt in order to live a lifestyle they can’t afford.
BNPL providers are responding to pressure
This type of lending is particularly dangerous because it encourages consumers to focus on immediate gratification in what they buy, and to think less about the affordability of repayments over the coming months.
Program providers are increasingly aware of the increasingly hostile attitude towards the industry, which some have warned could spiral into a scandal similar to the one seen involving payday lenders.
In mid-July, Klarna launched an initiative that encourages customers to ask themselves ‘Do I love it? Will I use it? Is it worth it?’ before using any of its services.
In response to the new ASA guidance, Klarna said in a statement, “We welcome the new guidance, particularly the requirement for transparency about potential fees, which Klarna does not impose.”
The head of marketing, AJ Coyne, also wrote in a blog post last week that the post-pay company has been working on the way it uses social media influencers to market its products.
Meanwhile, New Zealand’s Laybuy, which allows UK shoppers to pay for goods in six weekly installments after passing an official credit check, last week launched its own code of practice based on 18 principles, to which it called for other providers to sign up.
Laybuy announced in October that it had recorded 568,000 active customers across the UK, Australia and New Zealand by the end of September 2020.
One of the principles of the new code was to clearly present all advertisements, terms and conditions, and payment information. In response to the new ASA guidance, Managing Director Gary Rohloff told This is Money: “From our perspective, ‘buy now pay later’ products have proven popular because our customers typically don’t want or use credit cards.
New Zealand post-payment service Laybuy launched a voluntary code of practice last week inviting other system providers to subscribe to it.
They know they can buy a product and pay it off in full, in our case in six weekly installments, without interest.
However, we are clear that Laybuy provides consumers with credit and we have a duty to make sure people understand how BNPL works and what can happen if they are late on payment.
For us, we check a customer’s credit score upon registration and encourage customers to contact if there is a problem. If a customer misses a premium, we will freeze their account so they can’t continue spending.
“We as an industry must hold ourselves to high standards that put customers first.”
However, its new code of conduct has been rejected by Klarna and Clearpay, the third major buy-now, pay-later service available on the websites of major UK retailers that allows shoppers to spread the cost of purchases into four fortnightly instalments. .
The regulator could bring the scheme into its jurisdiction in 2021
Some 54 per cent of those polled by Capco called for better regulation of the sector, with the Financial Conduct Authority currently assessing whether to bring it under its scope in its unsecured credit review which will be published early next year.
“The big step is FCA regulation,” Alice Tapper said. Last week, I answered the FCA’s call to intervene, providing evidence to the Wallard Review that is assessing the unsecured credit market.
It said it had handed the regulator the details of 43 case studies of consumers who ran into problems with such schemes, including those who fell into problem debt and those who inadvertently used pay-post services after being set as the default option at checkout.
“I am encouraged to see that the FCA is considering regulation and I hope they will get involved quickly,” she said. It would be a great mistake not to act on this as soon as possible; The evidence that these products cause needless harm is overwhelming.”
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