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Is ″Buy Now, Pay Later″ the consumer credit magic bullet we’ve all been waiting for?

BIScom Subsection: 
Nigel Morris-Cotterill

Buy Now, Pay Later is a rapidly growing consumer credit sector. Last year, it is reported, it was used in 3.6% of retail sales in the UK. Is it a panacea or a plague?

Long Read: 17 pages.

When is "store credit" not store credit?

Buy Now, Pay Later is sometimes called ″store credit″ or ″shop credit″ but that’s not always true.

To understand why it’s not true, it’s useful to look at the history of General Motors. At various times in its life, GM, as it is widely known, has been broke. It developed its own finance company which raised money outside the company and lent it to customers so they could buy cars from GM. This was a very successful ploy. For a number of years, GM’s finance company has been more profitable than the car company. A scandal arose when it was discovered that the manufacturing company had sold a large number of finished cars to the finance company so as to get them off the manufacturer’s balance sheet. The finance company then leased the cars cheaply, eventually selling them as used. The important point to remember is that it was not GM manufacturing, ″the shop″ that provided the credit but an associated finance company.

Some companies do provide their own payment-by-instalments, or delayed payment, just like the corner shops discussed right at the beginning of this article. These are often websites that ship goods ″on approval.″ If the goods are returned within a set time, no payment is due. However, for example, Amazon.co.uk charges the first payment when the goods are shipped: this is not, strictly, an ″on approval″ model.

The associated credit company has worked well for many businesses including Marks and Spencer in the UK. This chain store has no converted its former simple credit operation into a bank called Marks and Spencer Financial Services plc which trades as M&S Bank. Its cards can be used anywhere, not only in Marks and Spencer shops.

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