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Are digital payments luring us into debt?

23.02.2018 Retail : Finance : Apparel
Scrip by New Deal Design is a conceptual device that enables consumers to see and feel their digital spending. Scrip by New Deal Design is a conceptual device that enables consumers to see and feel their digital spending.

Despite the benefits of a cashless society, our relationship with money is changing and many are struggling to control their finances due to the intangible nature of monetary interactions.

Rachael Stott, creative researcher, LS:N Global

Digital payment methods have made it quicker, faster, and more convenient to spend our money, and with a tap of Apple Pay or a scan of a QR code, you can be in an out of a store three shopping bags heavier within minutes.

Despite the benefits of a cashless society, our relationship with money is changing and many are struggling to control their finances due to the intangible nature of monetary interactions. The average person in the UK owes £8000 on top of mortgage debt and a recent study by credit checking service ClearScore found that two out of five shoppers had lost track of their spending because of the ease of digital payment methods. Most worryingly, retailers are capitalising on this consumer behaviour.

Point-of-sale personal loan companies such as Affirm, Klarna and Bread are increasingly partnering with retailers and being promoted as a payment option, making it possible for many consumers to purchase previously unaffordable items through monthly payment plans. Affirm alone has partnered with more than 1,000 retailers and provided more than 1 million loans since its launch in 2012, but with APR rates of up to 30%, providing high-cost debt for unnecessary goods is encouraging the worst kind of spending.

Credit has typically been used for necessary, high-value purchases such as a car or home improvements, but with merchants such as designer-fashion retailer Lyst and big-box retailer Walmart signing up to these point-of-sale loan payment systems, you can be enticed and permitted to buy £200 jeans you can't truly afford. According to The Financial Conduct Authority, over half the UK population are financially vulnerable, with 25-34 year old’s being the most over-indebted, and it is this cash-strapped generation who is the target audience for many of these payment methods.

Retailers need to consider the ethical implications of promoting point-of-sale personal loans to their customers, particularly to younger consumers.

Gen Z and Millennial favourite Asos recently partnered with Klarna and launched a new try before you buy service which allows shoppers to order fashion items in bulk and only pay for the items they keep. However, if the customer fails to pay for items within the allotted window of the order being dispatched or any unwanted items are not returned, their credit rating will be negatively affected, which many will be unaware of.

Although some critics blame this generation for poor financial decisions, Dan Ariely, professor of behavioural economics at Duke university explained to Business Insider that millennials' spending habits aren't necessarily down to their personalities and have more to do with the environments they are in, which are often actively encouraging them to spend. ‘If you think about our daily environment, we’re surrounded by shops and apps and stores and news and advertisements, and all of them are not interested in our long-term wellbeing. They’re all interested in their own short-term wellbeing,' says Ariely.

Retailers need to consider the ethical implications of promoting point-of-sale personal loans to their customers, particularly to younger consumers. That short-lived high of making a sale should not be at the long-term detriment of the consumer, and this new wave of credit brands are praying on the financially vulnerable.

For more on how brands are encouraging consumers to spend more ethically, read our Sustainable Spending micro trend.

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