Takeaways on buy now pay later

The impact of the Coronavirus Pandemic has not just affected the way that we live and work but also the way we shop. One of the lasting effects of the national lockdowns is that more than ever there is an increasing reliance on online shopping, with internet sales comprising 30% of total retail sales in December 2021, up from 19% in February 2019, with spikes in online spending for each lockdown.  

The growth in this industry has brought with it a wave of new and alternative payment methods and providers, all seeking to offer customers flexible payment options. One example is the emergence of so-called Buy Now Pay Later platforms (“BNPL”). With the BNPL model these third-party payment platforms make payment to retailers directly, with the customers staggering repayments to the platform on a weekly or even a monthly basis. Most platforms are completely free for the customer to use (if repayments are made on time) and the platform instead makes its money by taking a cut of the sale from the retailer for helping with the sale.

Many businesses see this as an attractive offering, where in return for a small fee they are able to reach a larger pool of potential customers who now have immediate access to funds for the purchase. Whilst often utilised by clothing retailers, the increase in the prevalence of these platforms could create opportunities for the food and beverage sector, allowing customers to delay the costs of paying for their weekly shop, or even dining out.

Why use it?

BNPL is known to result in higher spend per transaction as shoppers upgrade to more expensive options and buy earlier than they otherwise would have done - waiting for pay-day may now be a thing of the past. Grocery retailers may be slower to take up this model as the fee payable to the platform cuts into product margins, however some platforms have sought to address this issue by reducing their charges. This could be a useful investment for companies around big or seasonal events such as Christmas or Easter, enticing people to purchase premium food and drink products over the festive period.

However, as with all things, it is important to be mindful of the issues associated with these services, to ensure that risks are managed appropriately. There has been criticism of these platforms on the basis that it can increase personal debt and encourage overspending. Whilst the platforms are sometimes described as “no interest and no fees”, there are often additional charges for missing payments. As always, it is important to read the small print.

What should I watch out for?

Some critics have claimed that BNPL platforms are creating credit agreements by stealth, hiding late repayment fees from their advertisements and external messaging. Businesses seeking to take advantage of BNPL platforms should be fully aware of the implications of such agreements and ensure that this is accurately and clearly reflected in messaging to customers, including by adhering to the guidance published by the Committee of Advertising Practice. As the BNPL model is relatively new, businesses should ensure that the terms, particularly in respect of payment, are appreciated and accounted for – when will you receive payment from the platform for the products, what will you be charged for its use, and how can you exit the agreement if it isn’t working out?

Whilst the sector lacks specific regulation at present, the Government is in the process of considering how best to introduce formal regulation in the future. Those conversations are ongoing and in the absence of further regulations, a cautious and informed approach is encouraged.