Like it or not, buy now pay later will cleave customers away from credit companies
For some, buy now, pay later has become a dirty term. Instead of looking at the positives the industry is bringing, not only to consumers, but the wider economy, buy now, pay later schemes have been branded a new version of “wonga” loans, by some or even used as an insult to throw around amongst politicians.
This is surprising; there is no agreed definition of what buy now, pay later means, or which providers are caught in the scope. Advocates of traditional credit products have declared there is an “immediate risk” to the public from these payment methods, all the while, these same credit companies such as American Express, Mastercard and Santander rush to invest in and develop their own buy now, pay later products.
Drawing up a clear definition of what constitutes buy now, pay later credit, as opposed to more “traditional” forms of credit must be the first port of call for the consultation into regulating the sector.
One way to do this is to look at the problems they want to solve. Buy now pay later isn’t here to facilitate a generation of irresponsible shoppers; average order values at Clearpay are around £65. We don’t generate revenue from high interest or huge late fees that keep customers revolving in unmanageable debt – our business model is in fact the opposite: globally, 96 per cent of our payments are made on time.
Our business was born because people have become wary of traditional credit and its association with high interest rates and hidden fees.
Over the course of the pandemic, the use of credit cards dipped as consumers, in response to fears over economic security, shied away from taking on more debt. As restrictions have eased and confidence returned, credit card use has started to recover and return to normal, albeit slowly declining, levels.
At the same time, however, the use of buy now pay later schemes jumped, as people turned away from traditional sources of credit. Even as the number of people using credit cards has started to normalise, the acceptance of deferred payment schemes was able to take root at a time of uncertainty for many. Slowly, the number of people leaving behind their credit cards in place of buy now, pay later schemes will grow, as the payment methods become more widespread and cleave away an important customer base from traditional banks.
A study by Accenture noted that one in five Clearpay users – who bought at least several items – had stopped using credit cards since signing up for our service. In 2021 alone, UK customers saved up to £28m in credit card fees through using buy now pay later.
There’s more work that needs to be done, of course.
Consumers need protection whenever they are taking on any form of debt and given the prevalence of new companies breaking into the buy now, pay later schemes, the rules need to be consistent for the industry. That is true of any emerging sector. But to dismiss it off-hand because it makes us uncomfortable is defeatist and would be counterintuitive to an economy like Britain’s that relies heavily on innovation.
Ultimately, this is a debate about how we, as a society, offer consumers credit whilst helping them to avoid unmanageable debt. A service that builds customer protection, promotes financial inclusion and does not impact credit scores in the event of non-payment, will always win the debate over an expensive loan or high interest credit card.