Buy now, pay later schemes may encourage over-spending, warns Which?

Buy now, pay later firms should be fully regulated to better protect consumers, Which? has urged.

The consumer group fears slickly designed, easy-to-access credit products are encouraging impulse buying, with nearly a quarter of buy now, pay later users (24%) saying they spent more than they planned because the service was available.

Which? wants the Financial Conduct Authority (FCA) to be given new powers to regulate providers of this type of service, arguing this would help it monitor customer treatment so it can step in if necessary to prevent harm.

Around one in 10 (11%) buy now, pay later users told Which? they have incurred late charges when paying this way.

Four in 10 (41%) people in the survey of more than 2,000 participants who were aware of this type of credit did not believe or did not know that missing a payment could lead to the firm passing debts on to a debt collection agency.

The group’s call comes after consumer champion Martin Lewis told the Treasury Committee this week that there has been an “explosion” of buy now, pay later schemes, many of which are aimed at younger adults.

On Wednesday, Mr Lewis urged “maximum speed to move this into the regulatory environment”, adding: “Our political classes have failed if we regulate in two years’ time – two months’ time would be alright.”

Which? said “pushy” marketing strategies and “express checkouts” could drive people to over-spend. It said fashion retailers may be particularly likely to feature prominent buy now, pay later adverts.

The consumer group also found a quarter (26%) of buy now, pay later users said they had not planned to use this type of payment option until it popped up at checkout, while nearly a fifth (18%) said they used it because they were offered a discount to do so.

Just over one in 10 (13%) also said they used it by accident because it was selected as the default payment option at checkout.

One consumer told Which?: “I was tricked into (using) it because the box was already ticked.”

Which? said buy now, pay later firm Klarna previously commissioned a study into online shopping behaviour. The consumer group said the report, intended for partner retailers, explained how to design “customer journeys” that will persuade people to make “emotional” purchases.

Klarna told Which?: “While we cannot speak for the sector as a whole, it is wholly incorrect to claim that Klarna uses ‘pushy marketing strategies’.

“All Klarna customers are provided with our terms and conditions, which clearly outline the potential consequences of non-payment.

“If a customer misses a payment, we will proactively contact them to remind them via text, email, in-app notifications and letters.

“Klarna will only refer unpaid debts to a debt collection agency as a last resort after a period of several months. Klarna is fully engaged with the FCA review of the unsecured credit market.”

Jenny Ross, Which? money editor, said: “While buy now, pay later services offer speed and convenience at the checkout, our research shows their design makes it far too simple for shoppers to spend more than they were intending.

“This could lead to people building up debts that they may struggle to pay back, which is particularly concerning if they don’t understand the risks of using this type of product.

“Given that many people’s finances are stretched now more than ever, we believe that the FCA needs to regulate this market to ensure consumers are not harmed and that action can be taken if these firms are treating customers unfairly.”