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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.

What can go wrong?

Klarna say that, in 2020, it had less than a 1% default rate in the UK. But it has not said how many transactions (and therefore customers) that relates to. If (and we have made up this number for illustration purposes only) it's 50 million transactions then a 1% default rate is 500,000 is half a million people. That's a lot of people in an adult population of some 50 million.

Some penalty of some sort is often payable if customers are late or default. Companies are adept at saying, in their advertising, what they don’t charge but the devil is in the detail and users must be very cautious.

Also, if customers don’t pay up, the finance company can resell the debt to a debt collection agency and they tend to be, let’s say, persistent and persuasive. Indeed, the Hong Kong Monetary Authority has been getting very irate with banks in Hong Kong which have appointed debt collectors who have been somewhat forceful. But the practice is widespread, especially in relation to smaller amounts, because it’s cheaper and easier for the finance company to do this: court proceedings are completely uneconomic to recover small amounts. And in the context of court proceedings, a small amount is a lot more than you might think.

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