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‘Buy now, pay later services’ are helping to create a new generation of debtors

<span>Photograph: True Images/Alamy Stock Photo</span>
Photograph: True Images/Alamy Stock Photo

I opened a PayPal credit account in January which I use to buy things secretly on the internet, usually in the dead of night. My purchases are small and mad but they are also aspirational: a miniature gong; a leopard-print hat; a candle that says “ciao” on it. I only move one thumb when I shop, but in my head I am whizzing through time and space. I am the woman wearing the leopard-print hat and lighting the candle. I am now in several hundred pounds’ worth of debt.

PayPal is just one company that lets you “buy now, pay later” (BNPL). Services including Clearpay, Laybuy, Openpay and the industry leader, Klarna, known for its pastel graphics and marketing targeted at young women, allow customers to either delay the whole bill for their chosen item or stagger payments. Now worth £2.7bn, the BNPL sector nearly quadrupled in size in 2020 and an estimated 5 million people in the UK have purchased with BNPL since the beginning of the pandemic. Providers aren’t required to run affordability checks on customers, because the sector isn’t currently regulated by the Financial Conduct Authority (FCA), although regulation is expected to arrive soon. There are few checks and balances to verify how much a person’s income is when they use BNPL (the application for PayPal credit took me less than four minutes).

The easy availability of this line of credit makes BNPL seem less like a new way to accrue debt and more like a uniquely pleasurable way to shop, where the experience of parting with money is obscured by the invitation to pay in three instalments. Klarna ran a series of Instagram adverts in 2020 that have since been banned by the Advertising Standards Agency for linking the deferment of payment with the lifting of low mood in lockdown. The posts show influencers using their new purchases, with captions such as “getting dressed up can be a total mood booster… #KlarnaIt”. Retail therapy is nothing new, but what sets BNPL apart from traditional shopping is how it repackages debt into a form of self-care.

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The idea that BNPL is a way to invest in your emotional health is a seductive one. One friend, who lost her job during the pandemic, tells me she uses Klarna because it makes her feel “sensible”: “I massage my face and I have images of those beautiful girls on Instagram very slowly and elegantly massaging cream into their faces. They’re so lovely, the way they talk is so lovely, and everything is glistening and gleaming.” My friend likes being able to pay for products (mostly serums) in £45 chunks, and she enjoys the fantasy of picturing herself as the kind of person for whom a £140 serum is attainable. “In reality, my life is a pit.”

Shopping has always been an exercise in fantasy (with this new chair/dress/eye-mask, who will I be?). But until credit cards arrived, living this dream required the consumer to submit to the pain of actually parting with money. Dr Joe Deville, a specialist in debt and credit at Lancaster University, sees BNPL as a step beyond the credit card that numbs consumers to the financial consequences of their purchases. “For the past 60 years the credit card industry has been constantly trying to make this moment of transaction as smooth as possible. But ‘buy now, pay later’ is so smooth, it doesn’t even require a proper credit check.”

This smoothness is delightful because it’s deceptive. The balance I owe for the hat and the candle (and many other things) won’t appear on my bank statement; I will only have to see it if I log in to my PayPal account. Until I can bring myself to look at it, it will be as if my debt does not exist.

Critics have likened BNPL to Wonga, the controversial payday lender that went bust in 2018. But the reality is more complicated. Wonga’s interest rates were extortionate (at one point more than 5,000% APR), while Klarna, Clearpay and Laybuy charge no interest at all. The danger of BNPL is more subtle: it creates a new generation of debtors who may not even realise they are in debt. If you reach your limit with Klarna, you can put a payment on Clearpay, or PayPal, and bounce blissfully between them. A recent report into the sector by the FCA found it would be relatively easy to amass £1,000 of BNPL debt doubling up on lenders in this way. And while BNPL companies won’t charge you interest on credit, they could, in the event you fail to pay, pass your details to a debt collection agency. The routine use of BNPL, speculates Deville, “will for some users in due course lead to debts that they cannot manage, and perhaps will then push them into more expensive, subprime means of borrowing”.

Related: Instagram has looked deep into my soul – and I really don’t like what it has found there | Zoe Williams

It is worth noting that this new generation of debtors is overwhelmingly female: 75% of BNPL users are women, 25% are aged 18-24, and 90% of transactions involve fashion and footwear, according to FCA data. Self-improvement is an endless pursuit, and now we have “endless” credit to pursue it with. You can buy now and pay later for your Asos order, your retinol face cream, your salicylic acid serum. The seamless integration of this kind of credit into the online checkout encourages you to run your body like a small business. Products that were previously unaffordable to many are now placed tantalisingly within reach. It is even possible to Klarna your botox.

The thrill of hunting and tracking an online purchase is the tunnel vision it affords you: if I can only have this hat/candle, I will emerge from lockdown transformed. As a result of fewer opportunities to shop during the lockdown, £12bn of debt was repaid in the second quarter of 2020, but this was mainly by higher income households. The explosion of BNPL tells a different story: women, many of them young, first-time borrowers, are accumulating debt in the name of self-improvement. Now lockdown is over and human contact is back, I hope to spend less time in my bed buying things. Perhaps, after my tiny gong arrives, I will stop.

  • Kitty Drake is a writer and editor based in London