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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.

Non-credit payment methods

There is a non-credit form of payment: prepaid debit cards. This is relevant insofar as it provides a bridge between the various forms of credit.

Prepaid debit cards are a deposit scheme (although banking regulators haven’t fully caught onto that yet or are in denial) which allows the customer to spend up to the value on the card on whatever he wants, wherever and whenever he wants. It’s the customer’s money so when the goods are purchased, legal ownership passes to the customer. Merchants like debit cards because fees are lower although some merchants have taken to over-charging in order to obtain a security payment and releasing the ″reserved amount″ when the payment comes in. This really should be illegal but it isn’t. Why should it be illegal? It’s because the reserved amount cannot be spent until it is released and that can take, in some cases, several weeks.

This can be a serious problem: I found that I had to keep increasing the credit limit on my corporate cards because hotels and car hire companies would all place substantial reserves which, because I travelled so much, meant that, even though I was easily within the ″true limit″ the reserved amounts would – during a lecture tour – come to several multiples of my limit.

For those who use prepaid debit cards as a form of current account (and millions do, as was cruelly demonstrated by the Wirecard crisis) for their wages and salaries instead of using a bank, per se, this is problematic. For those on benefits, living week to week, it can be catastrophic. Why are they at risk? It’s because one of the prime offenders is petrol stations and the reserved amount, which may be substantial even if the customer is doing a small refill, may wipe out the end-of-the-week balance on the card.

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