Buy now pay never: this recession is our fault
Photo Courtesy: Wikimedia Commons
Recession is in the air. An unsustainable system which incentivises consumers to be in debt - and to pay for that debt “later” - largely fuels this crisis. Apps like Tabby and Klarna, created with the “buy now, pay later” (BNPL) model, are intrinsically based on neoliberal ideology, calling for a reduced role of the state in a highly privatised free market. This deregulated model makes the consumer responsible for their transactions alone, independent from high-street banks. Although BNPLs are currently all the rage, the current recession proves they may not be a sustainable solution.
BNPL platforms are designed to be better than credit cards (in the companies’ words). Their interface is relatively simple, and most do not charge interest and offer lower rates than banks. Thus, the consumer gets a product as soon as possible, paid for through instalments. BNPL companies mainly profit off penalty fees - charged when customers do not pay on time - and through cost-inflated online transactions. Fees are inflated based on the logical assumption that consumers will buy more on a BNPL model, and that the BNPL platform itself is liable for fraud claims - a stark difference from how credit cards operate. Ironically, their profitability is based on assuming customers will make mistakes and be fiscally irresponsible. BNPL’s popularity stems from a larger growing dependency on online shopping exacerbated by the COVID pandemic - when these platforms exploded in popularity. E-commerce is clearly becoming the norm, replacing brick-and-mortar shopping experiences - BNPLs have capitalised on this trend.
Companies like Afterpay - another BNPL platform - see themselves as the solution to the credit problem, envisioning a financially mindful consumer. In Afterpay’s CEO’s words, the goal is to give customers “financial freedom”. BNPL platforms like Klarna allow consumers to accumulate their revolving balance - the credit that rolls from one month to another paid at a later date - and specifically seek to help families that are financially struggling, assessing clients based on their credit scores. However, in June 2022 Klarna started reporting credit behaviour after heavy scrutiny, adding to the cap that they have on how much debt a consumer can accumulate, and penalty fees on excessively-late payments.
BNPLs continuously check consumer financial behaviour in-app and provide incentives for customers to pay back on time. This could, for example, be by starting with only a little credit, encouraging good credit behaviour through initially limiting access to credit, changing limits on payments permitted based on financial behaviour, and even by using the word “money” instead of credit. The re-framing of debt and credit is particularly important considering Klarna’s young target audience.
BNPLs love re-framing the debt crisis. Everything unfolds inside the app, so customers can only utilise this model there, and not with high-street banks, thus avoiding enacting an industry-wide change. The re-framing of responsibility is also notable, as BNPLs’ self-projection as financial do-gooders actually makes them more responsible for their apps’ effects on consumers - despite efforts to reframe individuals as the only ones responsible for their credit behaviour.
In 2020, an Australian Securities and Information Report found that 55% of BNPL users have multiple cross-platform accounts (a currently unregulated trend that could nullify BNPLs’ supposed advantages by allowing customers debt to accumulate on multiple platforms), and 21% of all users struggle to repay in a year, 47% for under-30s. Similarly, Credit Karma and StepChange report that 41% and 40% of users respectively do not repay. For consumers already struggling with cost-of-living, BNPL debt only piles on. More alarmingly, BNPLs directly targets their particularly young user-base, use algorithmic strategies to create personalised ads and have suggested a TikTok-like in-app “for you” page to suggest products to users. By fostering a ‘cool older brother’ persona, Klarna’s marketing strategy takes advantage of a younger, inexperienced, and vulnerable audience.
BNPLs are a symptom of neoliberalism’s evolution: they blame individuals instead of recognising deeper systemic issues at play. In this worldview, the solution to mounting debts is to create an alternate system that can “empower” users to feel like they are in control of their debt, as they are solely responsible for their fortune/misfortune. From a strictly business (and capitalist) standpoint, BNPLs are not the worst alternative to the credit systems that take advantage of the vulnerable, but they cannot be considered a real long-term solution. Moreover, these apps remain insufficiently regulated: Barclays (note a conflict of interest) reports that 2/5 users find BNPL terms confusing - because they are. Until the UK government begins regulating these apps, vulnerable, ill-informed consumers will be manipulated by an easy fix that may be harmful in the long run. As we plummet deeper into recession the larger systemic causes of debt must be recognised. A largely unregulated system that is yet to see actionable results is not the solution.