Ubiquitous Credit – A Benefit or a Problem for Consumers?

Has technology let retail finance saturate our lives?

No matter what product or service you want to buy, you can bet your bottom dollar, that there is a credit option available. At an easy click of a button and in usually in less than 7 seconds!

credit cards

Fuelled by new technologies, the reach and uptake of retail finance continues to grow, bringing advantages and disadvantages to consumers. We cast an eye over some of the latest developments – have things gone too far?

There can be no argument that Klarna and PayPal Credit have risen to become the major new players of the UK market. Many people may not be aware that Klarna was one of the fastest growing companies in Europe, tripling its profits in 2017 with over 70 million customers.

And if you think that’s impressive, PayPal credit has made spending so easy that you can get a decision on a loan application in only 3 seconds – mind blowing!

A recent article in the Independent highlighted interesting research from Deko, a payments technology firm. It shows that 65% of customers who have used point of sale finance say they only make the purchase because finance is available. More than one third say they are more likely to spend with a company that offers retail finance.

Most would agree that when used responsibly as a budgeting tool, retail finance is positive enabler. It can enhance our lives and give us accelerated access to products and services. It’s ubiquitous and the range of available finance is about as broad as you can imagine (regular TV adverts for DFS spring to mind). Featuring good and services as diverse as holidays, electronics, cars, fashion, schools, vets, conservatories and luxury watches, the list is ever expanding.

99% of people use point of sale finance responsibly to improve their lives. Hardly anyone owns a car these days and why would you when finance deals are so appealing and affordable?

The 1%

However, on balance, we are all aware there are darker stories around retail finance, where unbelievably high APR and unrealistic payment terms can cause pain. Without naming the well-publicised offenders, the main theme is over consumerism leaving people becoming immersed in debt by using fast finance to purchase items they didn’t need and can’t afford. The result: some must refinance to pay off their original loan, face debt collectors or even risk losing everything.

Clearly the writing is on the wall for the UK’s economic backdrop, no one can argue the storm clouds are looming. That paired with household debt in the UK currently siting at just under £60,000, including mortgages, means that as a nation we owe £1.6 trillion. That’s a lot of cash we don’t currently have.

What is too much?

News out of the USA just the other week, saw an announcement from Walmart to launch point of sale finance online and in their stores through finance partner Affirm. You can borrow between $150 - $2000 USD for purchases from the store, with a decision in seconds of course.

“Hey sir, how’d you want to pay for your family’s Thanksgiving dinner, right now or over six months?”

Personally, I completely understand how this could be beneficial for some. But part of me hopes we don’t see this in my local supermarket anytime soon (even though I imagine we will). It does feel like there is a disconnect in my head between offering people flexible finance and encouraging people to buy their weekly groceries on credit. Then again, how is a weekly supermarket different to buying any other product or service on credit?

I’m interested to hear your thoughts - should retail finance be reined in to ensure it doesn’t exasperate existing debt?

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