By Martha Alexander
alloons, candy floss, sequins and fluff; Lady Gaga and Snoop Dogg; full-bleed Millennial Pink overlayed by a rounded sans serif font.
All of this might evoke a detox tea influencer’s photo dump from Coachella yet what binds these images is not revelry but banking. It’s the Instagram-ready aesthetic of Klarna, a ‘buy now play later’ credit provider offered at the checkouts of retailers including JD Sports and Office and allows customers to delay payment for 30 days or split it into three chunks.
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Ostensibly, Klarna and the clutch of BNPL schemes including Clearpay and Zilch that have cropped up over recent years are ‘A Good Thing’. They’re not nasty doorstep lenders or payday loan companies (remember Wonga?) that exacerbate existing financial woes.
No, BNPL schemes boast zero interest rates and promise to be super flexible about repayments. There’s an overtone of ‘no strings’ easiness to it all. The marketing is acutely aspirational – hitting target audiences of Millennials and Gen Z - right in their wallets.
But are BNPL brands really doing young people any favours? It is not irresponsible to normalise a culture of easy borrowing in such an uncertain financial climate – not to mention promoting rampant consumerism and bad habits around money? Why is this sort of spending among young people – for whom getting on the property ladder is a pipe dream - so widely and relentless encouraged?
"Particularly worrying when you consider there is next to no financial education in UK schools."
It seems particularly concerning that Klarna is available at outlets popular with teens, like ASOS, and that they have pop-up events featuring branded pink Tuk Tuks and buses so people have an Instagrammable backdrop to pose against. It feels like debt is being glamorised and minimised: we all know money doesn’t grow on trees but apparently it shows up in the form of a little pink square at the checkout of your favourite store.
The problem with BNPL isn’t the product. Experts point out that plenty of people reap benefits from it, stick to repayments and there’s no harm done.
On top of the aspirational marketing, what causes concern is firstly, how thoroughly applicants for such loans are vetted and secondly, the apparent absence of duty of care to borrowers.
It could be argued that the onus should be on shoppers to do their homework before going hell for leather on ASOS but when it all looks so simple, cool and carefree there is nothing to suggest that caution need be exercised.
This is particularly worrying when you consider there is next to no financial education in UK schools.
“Only one in three primary school children currently receive any form of financial education, and only 48 percent of those in secondary school despite it being on the national curriculum,” explains Russell Winnard, Director of Young Money, a charity that helps schools with financial education.
The consequences of missing a BNPL payment can involve having to pay fees and in some cases debts are sold on to a collector. Personal credit scores can be harmed, preventing being able to borrow in the future on larger purchases.
"Credit scores is an area that young people have highlighted that they don't understand and we really need to do more to prepare them for these financial practicalities."
“I understood that I needed to pay the money back within a certain time frame,” says Jo, 24, who uses Klarna regularly. “But I didn’t realise that if I don’t stick to my payment plan it might impact bigger purchases in future. My friend couldn’t buy a car because of her poor credit score relating to being slack on a BNPL repayment.”
Not being aware of the impact of credit scores is a common theme.
“Credit scores is an area that young people have highlighted that they don't understand and we really need to do more to prepare them for these financial practicalities that are only a few years away for many,” says Winnard.
The BNPL industry is poorly regulated. The Woolard Review in February 2021 presented the case for better regulation by the Financial Conduct Authority. The government agreed but at present this still hasn’t been achieved – it is expected in 2022.
MP Stella Creasy expressed concern that it was taking too long and in the meantime, more vulnerable people were falling foul of BNPL schemes. Her fears are not unfounded.
The Financial Credit Association found that BNPL services were used by five million people in the UK for total sales of £2.7bn in the last year. However, one in 10 people using them already had debt arrears elsewhere. A report by Equifax states that 27 percent of shoppers said they would struggle to afford Christmas without BNPL.
"Buy Now Pay Later services were used by five million people in the UK for total sales of £2.7bn in the last year."
Without regulation, borrowers don’t have the protection of the FCA or the financial ombudsman if things go wrong. It is hoped that the regulator will insist on lenders doing more rigorous checks on loan applicants to ensure that lenders aren’t already in financial turmoil.
James Wilkinson, Head of Lending & Credit Risk at Fair for You Enterprise, a not-for-profit lender set up in 2016 backed by various social investors including Big Issue and Joseph Rowntree, explains that it is possible to lend responsibly.
“Our mission was around helping people paying poverty premiums and tackling the predatory short-term credit sector,” he says.
Whether BNPL companies will soon have to adhere to rules about how they market themselves remains to be seen. But slapping a soft filter on loans and presenting them as desirable is problematic. Money isn’t free, informal or easy. We do ourselves a huge disservice by allowing anyone to suggest that it is.
A spokesperson for Klarna said “We are unable to provide a comment at this time” in response to specific questions put to them by The Stack about but directed us to existing comment from the company regarding regulation of BNPL.
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