Can ‘Buy Now, Pay Later’ Operate Ethically?
How purpose can help ensure the sector serves consumers, rather than drawing them into debt.
The ‘Buy now, pay later’ model is booming in the UK. In April, it was announced that John Lewis and M&S will be making new strides into this area of consumer credit which is now worth £2.7 billion. BNPL has been heavily criticised by campaigners who believe consumers are being driven into debt by the ‘get finance quick’ model, and with three-quarters of users aged between 18 and 36, it is feared young people will be disproportionately affected. Klarna, a more established operator in this space, has met criticism with reassurance it will co-operate with regulators (recently the Treasury announced BNPL will be FCA regulated) and that it is committed to put consumers first. But even with regulation in place, is it possible for firms such as Klarna to offer young people credit in an ethical way?
Given, the agency for purpose-driven brands, believes that rather than writing off accessible credit as ‘all bad’, purpose can help make BNPL services genuinely equitable for consumers, and address the issue of overconsumption. It can allow brands such as Klarna to challenge the perception that credit always equals unmanageable debt and provide young people with a money management tool to serve them both in the short and long term. Here’s how…
The consumer must come first
Putting the customer at the heart of its service is key to Klarna operating in as ethical a way as possible. Klarna are certainly a very ‘customer focused’ brand and talk about both responsible lending and spending. But businesses that care about the wellbeing of their customers have action at their core. Klarna could use their customer-centric approach to truly understand consumer behaviour and work to help their customers, not just profit from them. This means encouraging moderated and sustainable spending. Klarna will say this is already happening, but in many cases, this is about providing support in managing debt rather than providing guidance in managing money.
As well as investing in statement marketing, OOH messaging and light-hearted influencer campaigns, they could use their marketing and comms to focus on education and behaviour change - encouraging more responsible money management. They have started this work but could become known for it. With their brand, voice, recognition and consumer reach, they are perfectly positioned to have a disproportionately positive impact.
Convenience, where we are able to purchase in a few taps, has been the driver of innovation for online retail. BNPL is just another example of convenience-driven innovation which provides immediate and clickable access to credit at the point of purchase. The problem is that credit has become too swift and seamless. There are less checks, less barriers and less delay to encourage the consumer to think about what they might be signing up to. This is clearly dangerous ground when it comes to young people racking up debts, but what if the same level of innovation that has been devised to make buying on credit so compelling, is applied to managing repayments?
There are a number of financial brands who are using innovation to help consumers make saving as effortless and instantaneous as spending. Apps like Plum and Tandem help consumers save by rounding up transactions to the nearest pound. Chip even allows you to save without thinking, using AI. For brands such as Klarna, it is critical that innovation is equally balanced between borrowing and paying back – not offering credit at a tap but help ‘if you need it.’ In addition to automatic repayment reminders, Klarna customers could be given suggestions to contribute more or overpay on payday. There could be more sophisticated systems in place which recognise when a customer’s spending is getting out of hand and automatically prompts, messages or simply cuts access to credit. Making these tools easy, accessible and interesting is critical. It’s hard to compete with the thrill of spending, but repayment can be made to feel less painful.
The sustainability imperative
There is no getting away from the fact that BNPL encourages and increases consumption. This is especially the case for brands such as Clearpay and Klarna who offer their services for low-ticket items and work with fast fashion businesses. Traditionally, credit was reserved mainly for single, expensive items such as a sofa or a bed, but with credit now being offered for a £15 top, it is impossible to ignore the fact that it is more about allowing and feeding-into excessive consumption, rather than providing credit as an affordability tool. The sustainability imperative for brands like Klarna presents a problem but could also provide a solution.
Klarna could help to promote more sustainable choices when consumers do spend money and also raise awareness around sustainability and overconsumption.
We know that sustainability is extremely important for young people. Almost half of 18 to 24-year-olds chose environmental issues as one of the nation’s three most pressing concerns, compared with 27% of the general population. And while it is true that there is often a behaviour gap between young people’s intentions and their actions when it comes to sustainability (due to competing pressures such as affordability,) it is certainly an issue they are aware of and believe to be important. Young people are also driven to buy from brands who clearly subscribe to having a larger purpose. Klarna are already making some strides in the area of sustainability - the brand recently announced 1% of the $1 billion in equity they have recently raised will be reinvested into solving global sustainability issues. But this doesn’t address the role it plays in perpetuating the problem and this is where the opportunity for the brand lies.
Klarna could help to promote more sustainable choices when consumers do spend money and also raise awareness around sustainability and overconsumption. This would of course have a significant impact on its business model and partnership structure, but by working with retailers it could really help accelerate the demand for more sustainable choices - particularly in the fashion industry - as well as promote more measured behaviour amongst its customers.
The pandemic has caused seismic shifts in the way brands and businesses operate. The onus on businesses to treat consumers responsibly has been thrown sharply into focus. As has the role that businesses play in the world. This has changed the way consumers see brands. There is now less to hide behind and COVID has shone a light on how companies behave, not just what they talk about in terms of purpose on paper. There will be a greater focus on actual corporate behaviour; the substance behind the message. Consumers won't always choose to use a brand or service simply because it is more purpose-led, but they may avoid or cancel one for not living up to ethical standards. For sectors such as ‘buy now, pay later,’ under immediate scrutiny because of their business model, there is an urgency to evaluate what they do and how they do it, in order to survive.
 Jan – Dec 2020 BNPL figures from the Financial Conduct Authority: spending has quadrupled using BNPL and three quarters of users were found to be between 18 and 36 years old.  2018 Aviva research: Consumers Do Care About Retailers' Ethics And Brand Purpose, Accenture Research Finds (forbes.com)