Point of sale credit – the latest route to debt

​It’s increasingly easy to apply for credit at the till but could this be storing up debt problems?

Quick application credit is being deployed at shop counters to help motivate sales (PA)

Ten years ago, applying for credit was a laborious process often involving reams of paperwork.

Now, technology platforms allow people to submit their application in moments and receive a response within seconds.

In this brave new fintech world, finance options such as credit and store cards are starting to look dated. Instead we’re turning to one-off credit agreements, often made at the point of purchase using services such as Klarna.

And this kind of quick application credit is being deployed at shop counters to help motivate sales.

Tony Smith, managing director of insolvency firm Company Debt, says these methods of delaying paying are soaring: “Short-term credit solutions are increasingly popular, as evidenced by the stratospheric growth of brands like Klarna and the rise of Paypal Credit.

“Klarna is reputedly one of the fastest growing companies in Europe, tripling their profits in 2017, and now serving some 70 million customers. It is fair to say short-term credit is now deeply embedded within online payments culture and used widely.”

Certainly Klarna is one of the best known providers of at-till, short-term credit. It’s been possible to spread the cost of a payment online for years; Amazon and PayPal have both offered the chance to defer or spread payments over a longer period with a simple few clicks. As the high street competes with the internet, many retailers are now offering similar opportunities to buyers.

A spokesperson for Klarna told us that this kind of frictionless transaction is becoming essential for brands that need to compete with online retailers. “Fintech has brought welcome choice and set a new benchmark on customer experience for payments, which in turn is a differentiating factor for merchants in a very competitive environment – helping them build customer loyalty,” they said.

“Shoppers today expect an intuitive and personalised user experience that is available when they need it, irrespective of time, location or what channel. They move freely between online and offline contexts and their expectations are for a consistent service.

“Pay later, for example, bridges a clear delta between online and offline shopping experiences, by giving consumers the flexibility to see and try on items before they decide to commit to purchase, similar to how they would in-store.”

Ubiquitous credit

It’s not just high street shopping that competes to offer buyers fast finance. Businesses ranging from colleges to vets are doing the same. Peter Mansfield, chief executive at payment technology provider Deko, says many different sectors are working to offer credit to their customers.

“Consumer credit needn’t be confined to retail,” he says. “We support merchants in a number of different sectors to help their customers access the things they need or want, when they need or want them.

“Such sectors include training, healthcare and travel. Payment plans range from one to three years and, generally, short-term credit wouldn’t work for these types of purchases.

“Looking to healthcare, pet-owners often face hefty bills for surgery and other treatments. In these cases, the offer of a payment plan could genuinely be the difference between life and death.”

Such credit options are often successful. Research by Deko shows that 65 per cent of customers who have used a retail finance platform say they only made the purchase because finance was available and more than a third say they are more likely to spend with a company that offers point of sale finance options.

Yet we are a country still stung by the financial crash of 10 years ago, a crash made possible in part because of all-too-easy access to credit. As fintech firms and retailers scramble to out-do each other in frictionless transactions and convenience, some analysts are concerned we’re making debt too easy and too normal.

Too easy

Moira O’Neill, head of personal finance at Interactive Investor, says she is worried about high levels of debt becoming simply part of shopping.

“‘Buy now, pay later’ schemes are essentially unsecured debt and people should be cautious about using them,” she urges.

“As a generation we are living with more debt than ever, with the average UK household debt, including mortgages, just under £60,000 and overall in the UK people owe nearly £1.6 trillion, up from £1.55 trillion last year. Shoppers who succumb to using these schemes need to be careful – they can become crippling if not addressed or looked after.

“Those who use it responsibly will find it a useful tool but some users may find it leads to bad habits.”

Certainly retailers on and offline are aware that by offering easy credit options at the till they are more likely to make a sale. In this tough climate, that’s a big benefit for businesses.

Just this week, Game announced it had partnered with Experian and Close Brothers Retail Finance to allow customers to text a number displayed in store to find out quickly and easily if they are likely to be accepted for finance on consoles and other major gaming products.

That doesn’t make it easier to be accepted for credit but it does remove a further barrier, namely the awkwardness of applying for credit in the store in person, without knowing if it’s likely you’ll be accepted.

Certainly Abby Vickers, credit risk director at Close Brothers Retail Finance, believes this will boost sales: “This self-serve facility offers a seamless experience to in-store shoppers and can help boost consumer confidence by giving an indication of their likelihood of acceptance for credit before they apply.

“This offers a great experience for shoppers and in these tough market conditions this can help retailers to reach new customers and fuel much needed growth.”

Yet if seamless shopping experiences that boost consumer confidence when applying for credit mean greater numbers of people applying for credit then, O’Neill says, that risks storing up future problems for a lot of current shoppers.

“In the past, there was a psychological barrier involved of people being embarrassed about being in debt, but for younger generations, I worry that this may be changing,” she explains.

“A little bit of extra debt on top of your car loan, like these buy now pay later schemes, may not seem like a big deal but this is where people are going to get into trouble.”

Yet others argue that this form of fast, low-cost, at-till credit is simply helpful for shoppers. Gary Rohloff is the founder of Laybuy, an online and in-store credit provider that automatically takes repayment weekly over the following six weeks.

He says millennials, in particular, have been turned off traditional credit and store cards for fear of spiralling debt but that this short-term credit provides one-off borrowing options.

“These new, more transparent relationships are giving shoppers confidence and greater control of spending limits; a brave new world that can – and is – being embraced by wise millennials,” he says.

“For retailers battling through troubled waters, promoting a store credit card to someone in their twenties isn’t likely to result in a positive action and could actually turn them away from a brand altogether. Providing shoppers with alternative ways to pay, whilst also giving them control and reducing any risk of piling up huge debts helps engage millennials and increase their brand loyalty.”

Whether easily applied for credit is an issue for consumers or not, fintech advances and a high street that’s increasingly desperate to secure sales means we’re likely to see more and more credit options as we shop.