John Lewis and M&S launched buy now pay later schemes

Some of Britain’s biggest brand names are looking to develop their own in-house buy-now, pay-later services such as Klarna as they try to take part in the booming £2.7 billion sector.

John Lewis has launched a regulated online payment method in partnership with French bank BNP Paribas that will allow customers to borrow up to £35,000 to fund home improvements and pay it back interest-free over 12 months.

Far from excluding pay later methods from its website, as Labor MP Stella Creasy urged her last month, it looks like fellow Marks & Spencer will be building its own version.

It said last week that it plans to launch a “digital credit option” in 2021 that will be a “cardless payment solution” available on its website and app.

Currently, it has options on its website via Clearpay and PayPal to split purchases without interest. Cooperated with Clearpay at the end of 2019.

The announcements come despite a warning last month that the burgeoning BNPL sector posed “significant potential harm to consumers” and needed to be regulated “as a matter of urgency”.

The industry review warned that some users do not see it as credit and could find themselves owing up to £1,000 “with relative ease”.

Activists warning of the dangers of the sector said it was “disappointing to see major high street retailers jumping on the BNPL bandwagon” and called it a “ticking time bomb”.

But the stores seem to be spurred on by the success of the likes of Klarna, who have marketed themselves on the basis that their offering leads shoppers to spend more, more often than not.

The value of spending through BNPL methods nearly quadrupled between January and December last year, according to the Financial Conduct Authority, with three-quarters of users between the ages of 18 and 36.

“The pace of development in the digitization of payment and shopping is rapid,” Clive Black, head of research at Shore Capital, told This is Money.

“Products like Klarna are becoming more popular, especially among younger shoppers, while also evolving with the regulator.”

Payments processor Worldpay found that it was the fastest growing payment method in the UK for the second consecutive year in 2020.

The sector review found that “total BNPL is about 1 percent of the total credit market but has accelerated very quickly to get there and is still growing.”

“It’s no surprise that individual retailers are starting to offer their own version of BNPL,” Laybuy co-founder Gary Rohloff told This is Money.

If you look in other countries, where BNPL has been around for decades such as Australia or New Zealand, there are more than 10 interest free BNPL providers. This is in addition to mobile wallets or the traditional store credit you find at checkout.

“What is clear to me is that stores are seeing interest-free BNPL’s popularity, in large part because customers don’t like traditional products like credit cards or catalog financing.”

Many of these retailers previously offered store credit cards or their own credit cards, as does M&S through the bank it runs in partnership with HSBC.

NextPay also offers NextPay, which can also be seen as its own version of the buy now, pay later system.

One of the payment options it offers allows customers to split purchases into three interest-free installments, though customers will be charged 29.9 percent interest if they pay less than that.

Next has insisted it is not a BNPL plan because it is regulated, conducts a difficult credit check and requires a formal credit agreement before it can be used.

It also offers financing similar to a credit card whereby those who do not fully pay off their balance are charged interest at the rate of 23.9 percent.

It’s currently encouraging shoppers to sign up for NextPay by giving those who do so by March 18th access to a sale, plus it’s offering £10 off a customer’s first order when they spend £15.

While details are limited on what Marks & Spencer will offer, John Lewis said customers will be able to access its new scheme when they spend between £1,000 and £35,000 online and pay it back over 12 months.

The payment credit option was previously available in-store and over the phone but is now open to those who buy online.

We can expect that some of the larger retailers will seek to work with other respected heavy hitters in the world of credit and consumer lending, to offer easily accessible credit, sometimes linked to a loyalty scheme, as Marks & Spencer hopes to do next summer, and that fits within a compatible context. Dr. Black added.

“No doubt there will be a smarter product on the market in time and that will need to be controlled but there may be a window that emerges with a proper balance that protects the shopper and encourages appropriate sales; obviously larger ticket items tend to benefit from credit.

Brands like Next and N Brown have had to work hard to be fully FCA compliant but such work needs to be done.

John Lewis shoppers will need to undergo credit checks in order to apply and will be required to provide personal identification and set up a direct debit to pay off the balance.

She insisted there were a number of differences between what it launched and the “buy now pay later” products offered by the likes of Laybuy.

Under the Treasury’s plans to regulate the sector, financing providers will be subject to FCA rules, so they will have to carry out affordability checks before lending and ensure customers are treated fairly.

Labor MP Jessica Morden previously said that this is the money the “proper oversight” is necessary for “an industry that risks becoming the Internet’s new Wild West; spurring young shoppers into unsustainable debt levels”.

Campaigners expressed disappointment with the ads from John Lewis and Marks & Spencer.

“During a period of massive economic uncertainty, they are touting debt to drive sales and create a new revenue stream, all under the guise of expanding options and simplifying payments,” said Anthony Morrow, co-founder of online financial advisor Open Money.

The BNPL is a ticking time bomb, playing on people’s desire to keep up with influencers and the fear of missing out.

Our research found that more than a third of people were enticed by BNPL to buy things they wouldn’t otherwise be able to afford, and the same number had to borrow money from family and friends or through credit cards or loans to pay it off. out of debt.

We’ve been promised new rules on the BNPL to protect consumers from potential missales and financial damages, but we’re yet to see any action or deadline from the FCA to make that happen. And the threat of regulation has clearly done nothing to dissuade retailers from using these products and launching schemes of their own.

M&S said its digital credit option would be a regulated financial product but said it could not share any more information at this point.

M&S Bank CEO Paul Spencer said last week that its “expanded suite of payment solutions” will provide “customers with a more seamless shopping and payment experience.”

John Lewis said in a statement: “We recently launched a new interest-free credit offering with BNP Paribas. For the first time ever, customers can apply for interest-free credit online and through our call centres, as well as in John Lewis stores.

“As part of the offer, they will have access to credit for more products and greater visibility for their account online.”

The legislation that will govern the currently unregulated BNPL sector is up to the Treasury Department, which said at the end of January it would be introduced “as a matter of priority”.