In today’s digital landscape, customers are used to getting whatever they want, whenever they want, all with a swift click of a button. But this level of power may not always be a good thing to some impressionable users from a younger, more vulnerable generation. Because of this, some delayed online payment services are facing stricter regulations to protect customers from potential financial burdens.
Most notably, popular Swedish shopping service Klarna recently came under fire for offering delayed payment plans to young customers who likely could not afford the products they were extending credit for. The government is attempting to hold these payment services more accountable for properly ensuring customers are actually eligible for the easily accessible buy now, pay later plans.
The services, which are available with popular retailers like H&M, Lululemon, and Bloomingdales, allow customers to spread out the initial cost of their purchase over a period of time with no interest, or delay the entire payment altogether. The plans are apparently acting as an alternative to credit cards, giving customers who may not be approved for standard lines of credit a new way to finance purchases. The main concern with this consumer tool is that it currently lacks any affordability review, allowing impressionable young customers to take advantage of the seemingly generous payment plans.
Although it is noted that many customers use the tool to order multiple sizes, colors, or fits with the goal of returning them before having to put any money upfront, others see it as a way to spend money they simply don’t have.
The service’s approval process is so lenient, that it actually attracts fraudulent activity, allowing individuals to easily shop in someone else’s name and delay the bill on their behalf. Signing up for the pay later service only requires a name, email, date of birth, mobile number and billing address. Because of this, some individuals are receiving delayed bills and racking up debt from a service they’ve never even used. Klarna notes that they are constantly enhancing anti-fraud measures and security, however, there are currently cases that slip through the cracks.
This simple approval process has attracted many young shoppers, which caught the eye of one woman who started a social media campaign to enhance regulation on buy now pay later offerings. With just under a quarter of 18 to 24-year-olds using the plans, Alice Tapper started the #RegulateBuyNowPayLater social campaign to correct the apparent misinformation she believed was being promoted by the brand.
The campaign aimed its sights on two areas, misleading ads and lack of consumer protection. Tapper was concerned about the absence of risk wording in buy now pay later ads and the influx of influencer marketing that promotes luxurious lifestyles as attainable to younger followers.
Additionally, different buy now pay later services provide conflicting stances on credit score impacts, late fees and debt collection. While the services promote language like, ‘No interest, fees or credit application,’ retailers they partner with state that late payments or non-payments will in fact impact customers credit scores. One customer even noted that her £4 debt was sold to a collection agency after she forgot to pay for a hair scrunchie. While these standards may be obvious to some individuals used to the underlying implications of buy now pay later structures, it becomes more ambiguous to young shoppers who are not as financially literate.
It promotes a kind of ‘read between the lines’ concept, that says one thing and ultimately means another. Although these services may be incredibly helpful to some, offering a lifeline between paychecks, it's important that more impressionable, less educated consumers are offered some kind of warning in the event they cannot pay. Wording is important, and customers expect that what they’re reading from a brand should ring true, which is apparently not always the case. I’ve even personally seen young women casually posting on social media about the large amounts of money they owe to Klarna or Afterpay, clearly unaware of the possible repercussions. And while these may be trendy now, young consumers will eventually catch up and potentially warn others about the debts they incurred using the service.
To be fair, the use of these services do not blanketly need to be discouraged. They make sense (and are quite valuable) when customers are using them to make necessary purchases and are fully conscious of the payment requirements. They also, understandably, add value in reducing customer effort. Retailers are always looking for new ways to improve the purchasing process to make it as seamless as possible for customers. And although reducing effort is a consistent priority for companies emphasizing convenient and supportive experiences, there are some instances where oversimplification can actually lead to negative consequences. In this case, the issue occurs when customers remain unaware of the actual lending process, or fraudulent shoppers begin to misuse the service in a way that incurs high levels of debt.
To avoid this, businesses need to reassess these convenience measures, and although it may seem counterintuitive, consider implementing increased levels of ‘effort’. By heightening security and transparency measures, this effort can end up having a net-positive effect on customer relationships. Although individuals may appreciate the ease of use these services promote, they should never be utilized at the expense of customers’ trust.
Ultimately, with all of these major concerns being brought to light, the British government has decided to regulate the sector. UK Economic Secretary to the Treasury, John Glen noted that regulation will ensure customers are being treated fairly and are only offered agreements they can afford, which is the same protection they would receive with any other loan. This regulation will hopefully give consumers a better picture of the agreement they’re entering when using these services. It also emphasizes the power of consumer protection; if brands deceive willing customers - it will be recognized. The most successful companies, then, provide customers with the most accurate and honest information to foster more meaningful relationships long-term.
Photo by Negative Space PEXELS