Consumers used £2.3billion of ‘buy now, pay later’ credit to pay for Christmas

Shoppers relied on ‘buy now, pay later’ firms to spend £2.3billion over the Christmas period, as lockdown measures pushed Britons to buy presents online.

Research found that one in four shoppers used firms such as Klarna, which has formed partnerships with hundreds of household name retailers, in the run up to Christmas. 

Shoppers spent an average of £170, which it is claimed represented nearly 40 per cent of all Christmas shopping, adding up to a total bill of £2.3billion  

Buy now, pay later services face demands for regulation over fears that Britons are racking up huge hidden debts.

The other major firms offering the service in the UK are Clearpay and Laybuy.  

The research, by credit reporting firm Credit Karma, also found that young people were the most common users of buy now, pay later.

Credit Karma said nearly half of shoppers under 35 had used these schemes at Christmas.   

The services of firms such as Klarna, which has eight million customers in the UK, are promoted through websites of retailers. 

It means Britons can ‘buy’ items immediately but pay for them at a later date.

Options include paying the full sum within 30 days, splitting the cost of items into three instalments, or taking credit to pay for products over a longer time frame. 

The firms have been accused of tempting people – especially younger adults – into getting into debt by spending money they don’t have. 

Figures previously released by debt solution provider Financial Wellness Group said it was increasingly common for people in debt to such schemes to come to it for help.  

The Advertising Standards Authority (ASA) recently investigated Klarna for paying social media influencers to encourage use of their services.

One Instagram post looked into by the ASA was influencer Claire Menary’s April post: ‘Thank you @klarna.uk for the simple reminder that getting dressed up can be a total mood booster.’

And in a post promoting beauty face masks which was sent to the ASA, Aisha Master wrote: ‘A great investment mask, made easier with @klarna.uk. 

‘Brighten up your lockdown days by heading over to their page.’

Speaking to the Telegraph, a Klarna spokesman defended its service, saying that it provided an alternative to credit cards. 

They added that they allowed customers were able to try items before paying in full.

The spokesman also said customers are assessed each time they make a purchase to ensure they’re not spending more money than they have.

Clearpay said its customers like to spread their payments over a longer time period, rather than build up their credit score.

It added that user accounts were frozen if users missed a payment.

Laybuy said it performs a hard credit check to make sure customers can repay. It added that around 25 per cent of users are rejected on their first application. 

Gareth Shaw, Head of Money at consumer group Which?, said: ‘The Buy Now, Pay Later market continues to grow at a rapid rate, but we have serious concerns that the slickly-designed and cleverly-marketed payment schemes used by some firms are encouraging people to spend more than they can afford. 

‘This could lead to people ending up in significant debt, which is particularly worrying as we have found that people’s awareness of the risks of using this type of credit is low. 

‘The FCA needs to regulate this market to ensure consumers are not harmed and that action can be taken if these firms are treating customers unfairly.’