Consumer champion Martin Lewis hit out at takeaway company Deliveroo for its new ‘Buy Now, Pay Later’ scheme.
The idea of buying goods on credit and paying it back at a later debt has become increasingly popular over the last few years, particularly via the Swedish-based company Klarna, which describes itself as “shopping, just levelled up”.
The platform has become a household name after pairing up with big fashion brands such as ASOS, and has expanded at an astounding rate.
It has been praised for being a supposedly easy way for someone to buy something and return it without actually seeing any money leaving your bank account, but while being hailed as a genius business model, it has also been criticised as a potential “fast track to debt” for some users.
Now Deliveroo has partnered with Klarna, meaning groceries and takeaway can be paid through credit (another word for borrowing money) too. It means buyers can choose to pay instantly, pay back the full amount in 30 days or spread it out over 60 days, in three equal instalments.
According to the i newspaper, chief business officer for Deliveroo’s UK and Ireland division, Carlo Mocci, said: “Millions of people are already choosing Klarna and we’re giving customers more choice and more flexibility with a safe, secure way to pay online.”
Klarna does’t charge interest or fees if the full amount is paid within the expected timeframe. But as Martin Lewis points out: “Borrowing should only be if NEEDED, for planned one off budgeted purchase, not a cheeky Nandos.”
And there are other consequences to using credit for these minor purchases.
Buy Now, Pay Later is not yet regulated
As Lewis pointed out, there is little regulation across the entire ‘Buy Now, Pay Later’ (BNPL) sector, meaning consumers aren’t always aware of strings attached.
Which? deputy editor Sam Richardson told i newspaper that there’s a need for regulation of the market “with appropriate affordability checks to prevent people from amassing debts they could struggle to pay off”.
The charity Citizens Advice has also called for “clearer information at checkouts”, where consumers can just click a few buttons and sign up to BNPL without understanding exactly what that means.
What happens if you don’t pay?
Research company Which? found there’s minimal information available about what happens if you don’t repay your debts within a BNPL scheme.
An Opinium survey for the charity also found than more than one in 10 of customers who use this scheme “didn’t fully understand how the repayments would be set up”.
More than two in five customers surveyed who has used BNPL schemes said they had had to borrow money to make repayments. This included using overdrafts, borrowing from friends and family, taking out bank loans, and payday loans. It found 26% used credit cards to pay them back.
Citizens Advice’s Millie Harris explained that this is “just relying on one debt to pay off another debt”.
Research from credit score company Credit Karma found that more than 40% of consumers using this payment method missed a repayment as of mid-June this year – compared to 11% last year.
Then there’s the worry about its effect on your credit score. On its own website, Klarna warns: ”Use of these [payment methods] and any missed payments may affect your ability to obtain credit from Klarna and other lenders.”
It also points out that using “existing, late and unpaid balances and payment holidays” will be visible on your credit file to other lenders.
Cost of living crisis
As budgets become tighter due to the ongoing cost of living crisis, there is a real concern that more people will turn to schemes like the one run by Klarna.
Young shoppers are particularly likely to use BNPL. Citizens Advice found 51% of 18-34 year-olds borrowed money to pay off this debt, compared to 39% of 35-54 year olds and 24% of over-55s.
Harris added: “It’s heartbreaking to see parents who can’t afford their children’s clothes or shoes turning to ‘buy now pay later’, thinking it’s doing them a favour. In reality it’s just more debt, and more creditors, on top of what they’re already facing.”
But Klarna says that according to its research, one in five Brits already pay for takeaways on a credit card, and one in seven have used an overdraft.
A spokesperson told HuffPost UK: “People have been paying for food deliveries with credit cards and overdrafts for decades but they’ve been stung by rip-off fees and extortionate interest so it’s time consumers had the choice of a healthier alternative where they only ever pay the original cost of the purchase.”
The company said it performs a check every time someone uses Klarna’s BNPL products to identify whether they can and should make a purchase and that there is a minimum order value of £30 for its pay in three product.
HuffPost also contacted Deliveroo for comment and will update this piece with any response we receive.