Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Love it or loathe it, ITV2’s Love Island has cemented its place firmly in the UK’s collective consciousness.
With a new winter edition now under way, the success of the show cannot be dismissed — last year, the show brought in record-breaking viewing figures for the channel.
As I sat down on the sofa last week ready to indulge in a new batch of Islanders, what caught my eye, even more than the contestants’ dazzling veneers, was the show’s fashion partnership.
Online fast-fashion retailer I Saw It First bagged this lucrative contract again, as it did last year for Love Island’s summer series.
For those of you who have managed to avoid the show, it teams up with a different fashion brand to dress contestants for the six weeks they are shacked up in the villa.
The retailer then markets the same garments on its app and website, allowing fans to purchase the outfits for themselves in a few clicks.
When I grabbed my phone to scope out this Love Island collection, plastered across the screen in a pink font was an advertisement for Klarna, the Sweden-based bank that offers “buy now, pay later” (BNPL) payment schemes.
My inner alarm bells started to ring. You may not have heard of BNPL — but if you have teenage or young adult children, they certainly will have.
Over the past few years, Klarna, alongside other schemes such as Clearpay or Laybuy, has become a popular way for impecunious millennials and Gen Zs to buy clothes. They offer the option to delay a payment or to split payments into instalments.
But debt advice charities are increasingly worried that BNPL is encouraging young consumers to spend more than they can afford.
A search for “Klarna” on Twitter quickly reveals the nature of the problem.
One user says: “Using my paypal loan to pay off klarna debt”. Another says: “Me buying shit on my 3 klarna accounts with £2 in my current account and my Monzo account minused”.
One user even tweeted that her boyfriend paid off her “extensive” Klarna bill as a Christmas present. How romantic.
A recent study by Compare the Market, a comparison website, found that nearly one-third of young people used BNPL during the past year. My friend told me she loves it because she can order the same dress in multiple sizes or styles, try them on, and send back the rejects, eliminating the wait for refunds.
Klarna offers a wide range of financial products, but the two most popular, mentioned above, boast that no fees or interest are charged and that a full credit check is not required.
No interest or fees are charged because retailers pay BNPL companies for their customers to be able to use the service. Retailers are attracted by the sales boost these services typically bring and the high sign-up rates of BNPL companies. Klarna, for instance, says it signs up 55,000 new customers a week.
Compare the Market’s research suggests there may be real financial risks to the trend. Two-fifths (41 per cent) of those asked were unaware that a missed payment on BNPL would impact their credit score. As many as 2m adults, 39 per cent of whom were 25 to 34-year-olds, had damaged their credit score by using these payment schemes.
Klarna was not specifically cited in the Compare the Market research. However the Swedish company issued a statement last week in response to the widely reported study.
Luke Griffiths, general manager at Klarna UK, said that its “pay 30 days later” and “instalment” options are exempt from credit checks, so it was inaccurate to say that their scheme damaged credit scores.
He added: “To date, a customer’s credit score has not been impacted by using Klarna’s ‘Pay later’ products even if they have failed to pay on time.”
In previous statements, however, the company had said that all of its products could impact credit scores. When the FT pointed this out to them, Klarna replied it had said this only “to ensure [its] responses are relevant and accurate to [its] entire range of products”.
One such “financing” product, formerly known as “Slice It”, gives payment plans from 6-36 months, undertakes hard checks and can therefore impact credit scores.
Klarna declined to say what share of customer payments were over two weeks late, or what proportion had been handed over to debt collectors, except to say that both were “low”.
The lack of clarity on such questions reinforces concerns about how BNPL schemes market themselves to young people.
There is nothing wrong with such finance schemes, as long as you pay them back on time and fully understand the terms and conditions. But what is troubling is that it appears BNPL schemes are not making the financial implications clear enough, particularly when marketing to young people who are more likely to be financially vulnerable.
The other element of the study found that 20 per cent of respondents felt they were not shown the terms or conditions and over half (51 per cent) believed BNPL had contributed to their increased levels of personal debt.
PayPlan, the debt advice company, recently warned of the problems that BNPL can pose to consumers. Rachel Duffey, PayPlan chief executive, says: “We’re calling on Buy Now Pay Later lenders to consider making their terms much clearer at the outset.
“Some retailers offer BNPL as the default payment option and it is all too easy to enter into this type of credit agreement without the implications being fully understood by the consumer.”
Looking into Love Island’s fashion partner, I Saw It First, this is evident in the information offered on its website about Klarna. It illustrates how to use the payment method in three steps, using millennial lingo like “fave styles” and “deets” [details].
“Don’t worry,” the text says, while noting that there are no fees or interest, that credit applications do not apply, and that you will be sent sufficient reminders to pay.
In short, the information given consists of three steps and a seven bullet point FAQ section, with a gentle suggestion to check out Klarna’s website for more information.
The pally wording and minimal information lulls young consumers into believing this looks like a sweet deal. But it is still persuading them to spend money they do not have. And when young people are being urged to spend money on non-essential items like fast fashion, it is even riskier to their financial wellbeing. (I Saw It First did not respond to requests for comment).
Fast fashion is based on fleeting trends that may last no longer than a few months. Trying to keep up with such a quick turnover can be difficult, so young people turn to payment schemes to be able to afford them.
Social media platforms, such as Instagram, exacerbate this as influencers post daily pictures in different outfits, never being seen twice in the same one, which puts pressure on young people to keep up.
This same trend last year forced online fashion retailer Asos to ban serial returners if they “suspect[ed] someone is actually wearing their purchases and then returning them or ordering and returning loads”.
A group of Love Island stars turned influencers also came under fire for promoting a partnership between fast-fashion brand Boohoo and Klarna on an Instagram post, with critics saying they were encouraging young people to get into debt and not providing sufficient information on what a BNPL scheme entails.
StepChange, a UK debt charity, has seen an uptick in young people using its services and is worried about how these schemes are being targeted at them.
Sue Anderson of StepChange says: “The principle that credit should be ‘bought, not sold’ needs to apply just as much to these credit services as to any other loans or borrowing.”
“If we want to reduce the risk of people inadvertently taking on unaffordable financial commitments, borrowing shouldn’t just be a byproduct of marketing to support the sale of retail products.”
With millions of young, impressionable eyeballs focused on Love Island and its related sponsors for the next six weeks, heavy marketing of BNPL risks luring young people into bad financial habits.
So before they feel the urge to recreate their new favourite reality star’s wardrobe, millennials and Gen Zs would do well to remember the adage: beware of wolves in sheep’s clothing.
Katharine Gemmell is an NCTJ trainee reporter interning at the FT. Twitter: @KathGemm