Black Friday is a boon for providers of deferred payment solutions. Taking advantage of customers’ propensity to overbuy during the holiday season, the “buy now, pay later” model is spreading like wildfire. Consumer protection associations are warning of the risks.
In the midst of bargain hunting, some customers are tempted by the possibility of paying for their purchases deferred so as not to miss out on a good opportunity. They then take the risk of plunging into a vicious spiral of debt.
When a merchant offers its customers the option to pay for their purchases in several installments using a third-party service provider such as Klarna or Cembrapay, formerly Byjuno, the payment in several installments is automated. According to specialists, these payment methods cost between 1 to 5 billion francs per year. A niche market if we put it into perspective with the 8.5 million credit cards in circulation in Switzerland and the 32 billion transactions they generate.
Debt Trap
Deferred payment is increasingly used in Germany, Great Britain and the United States, according to payment solutions provider Adyen. Purchasing on credit is especially popular among young people. Thus, in Germany, the only age group where over-indebtedness increased last year is that of 18-30 year olds, according to Creditreform.
Retailers doubt deferred payment specialists’ argument that lower margins are offset by larger shopping baskets
Deferred payment is regularly criticized by consumer protection associations. When a company offers to go through third parties like Klarna or CembraPay, purchasing on account presents risks and can turn into a debt trap. Hence the recommendation of the associations to pay the amount in one go and on time.
A small proportion, but rising sharply
In Switzerland, the success of this model is not resounding. And this is more down to retailers, as Severin Pflüger, director of the Electronic Payments Association (VEZ) explains to AWP: “merchants actually have to pay additional fees for deferred payments.”
However, many are not ready to see their margins reduced in order to have an additional means of payment. “Retailers doubt the argument of deferred payment specialists, who claim that lower margins are compensated by larger shopping baskets,” underlines Severin Pflüger.
Despite everything, the use of these payment solutions is increasing. In its annual report, consumer credit specialist Cembra Money Bank notes that net customer receivables in the deferred payment segment increased by 12% compared to last year.
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