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BNPL schemes make it easy to spend, but harder to understand the risks

BNPL schemes make it easy to spend, but harder to understand the risks

A study of the terms & condition of popular buy now, pay later apps finds that they can take up to an hour to read, with important information about financial risks buried in the documents.

Klarna, one of the most popular buy now, pay later apps, comes out on top for the longest T&C’s, according to the study conducted by NerdWallet, taking up to 57 minutes for the average reader to plough through. The clarity score attached to the advsiory comes in at just 48%, making it difficult for users to understand exactly what they are reading.

By contrast, the T&Cs of rival Australian provider Zip take just 20 minutes to read and return a clarity score of 92%

John Ellmore, operations director at NerdWallet, says it’s all too easy to skip past long documents and take the advertising at face value, but it’s important for users to remember that their finances are at risk.

“With the length and complexity of terms and privacy notices, we shouldn't be surprised if many people click accept without reading or understanding exactly what they’ve agreed to," he says. "This may not cause problems for most people, but there is a risk that a customer could agree to something they weren’t aware of if the crucial piece of information was buried in a mass of text."

Research cconducted by Capco last year revealed that more than half of 18-34 year olds using BNPL services have missed a payment and nearly two thirds say it is making them spend more, potentially increasing their chances of getting into debt.

"As buy now, pay later schemes grow in popularity, it’s important that providers try to make their terms and privacy policies more concise and easier to read," says Ellmore. "Improving the accessibility of the documents could encourage people to read them in full, helping them to better understand their rights and feel more confident about the service they are using.”

In truth, very few people take the time to read the terms and condition of consumer goods, as amply demonstrated in an Apirl Fool's prank staged by online computer game sller Gamestation last year. Gamestation changed its terms and conditions to say that anyone buying goods from it online on 1st April this year and not clicking on a link contained within them would forfeit their soul.

The prank, which was designed to highlight that terms and conditions are almost never read, fooled all 7,500 customers who made a purchase that day.

Comments: (4)

Hitesh Thakkar
Hitesh Thakkar - SME - Fintech startups (APAC and Africa) - India 21 April, 2021, 11:15Be the first to give this comment the thumbs up 0 likes

No Prize for 1st April Prank as wiht out 1st April also people don't read T & C specially of E-commerce sites , Banks and Insurance.

Kudoes to Australian BNPL Zip for making the life easier for it's customers.

I would love to know comparison of Klarana and other players in BNPL how they charge borrower on default on payment? 

A Finextra member
A Finextra member 22 April, 2021, 08:091 like 1 like

According to EU cons cred law it is not enough to post a multi page T/C doc - one must also give standardized format info on APR and examplify with a loan amount and interest payable over time+ fees,  all this in advance of the consumer taking the credit. It is not allowed to hide cost of credit in the T/C. And BNPL is a consumer credit - it is not "an invoice". 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 April, 2021, 13:37Be the first to give this comment the thumbs up 0 likes

According to a study, when the jargon was stripped out of it, a six page credit card T&C ballooned to 24 pages.

If it's concise, it will be hard to read. If it's easy to read, it will not be concise. This is a basic fact of life. Nobody who has actually written a contract can disagree.

IMO, this study is yet another attempt to deflect responsibility away from borrower and merchant, and shift the blame to the lender.

A Finextra member
A Finextra member 22 April, 2021, 22:40Be the first to give this comment the thumbs up 0 likes

Making an online purchase with a mobile phone does not make one very receptive to a 57 minut read-through of a BNPL T/C document. In Sweden the Parliament issued a regulation hitting BNPL: In e-comm the default payment option must be "own money" based - a debit card, A2 A bank transfer or similar and the customer needs to actively change the payment option into BNPL if that is the preference. The e-comm check-out companies now seek to get more revenue from the e-comm merchants since the low hanging fruit of BNPL became a harder sell.