BNPL Policies Take Up to an Hour to Read

It takes up to an hour to read the policy documents of some buy now, pay later (BNPL) schemes, a new study has found.

Nerdwallet analysed the terms and conditions of some of the UK's leading BNPL companies to see how long the documents would take an average native English speaker to read.

Klarna, the UK's most popular BNPL app, topped the table with a policy document nearly 14,000 words long, taking the average reader 57 minutes to work through.

Across 11 different services, a reader working 238 words per minute would need more than 36 minutes to get through the typical set of T & Cs, Nerdwallet found.

The company also ranked policies for clarity based on the interpretation of Grammarly, a writing assistance tool which scans texts for mistakes. Klarna, with the longest policy document, only scored 48% for clarity. The lowest score went to Payl8r, whose tangled T&Cs clocked in at just under 10,000 words with a clarity score of just 39%.

Meanwhile, Zip, a company with the shortest policy documents, scored 92% for clarity – and was unquestionably an outlier.

Nerdwallet's UK Operations Director John Ellmore said:

Reliance on credit and the debt that comes with it has only been exacerbated by the current pandemic.

As a result, it's more important than ever to make sure that everyone can understand what they're signing up for and the possible dangers involved in paying by one of these methods.

Finder UK reported that more than half (54%) of BNPL users have increased how often they shop with the schemes since the start of lockdown.

This flies in the face of traditional credit spending, which shrunk as many kept a close eye on their finances due to the uncertainty of the pandemic.

However, many BNPL consumers report viewing the schemes as a 'softer version of credit, with over a quarter (25%) saying they chose BNPL because they didn't want to take out a credit card.

Unlike credit cards, BNPL schemes are not required to run hard credit checks on consumers, making them faster and easier for many consumers to access.

However, a new Citizens Advice report published this week suggests that this ease-of-access is partly to blame for the fact that one in four BNPL users says they are struggling to afford essentials, such as food and rent, as a result of their credit repayments.

Others told the organisation that they did not even realise they were taking out a loan when they signed up.

With BNPL sign-up often presented at the checkout of online shops, it can be easy to confuse the schemes as simply another payment method, such as Apple Pay or Paypal-- another reason why the clarity and accessibility of policy documents ought to be a boon for consumers.

"As debt becomes increasingly normalised due to the growth in popularity of the "buy now, pay later" schemes, it's important to remind people of the importance of being aware of your finances. While these schemes are appealing, particularly to younger generations, they can also be extremely dangerous as it's a slippery slope and can result in serious money issues.

It's also important to consider the effects of these schemes on both your mental health and the way you approach finance," said Ellmore.

Concerns over BNPL led to calls for regulation in February, a process which the FCA is set to launch later this year.

While being unregulated does not mean a business is carrying out illegitimate or questionable activities, it does limit options for consumers looking for a resolution when things go wrong.

In the meantime, Elin Helander, Chief Scientific Officer at financial wellbeing fintech Dreams, warned users about the risks of BNPL schemes to long-term financial health:

"Perhaps the most fundamental problem with these schemes is that they normalise the borrowing of money which, in turn, fuels a society driven by overspending and present bias, which is the tendency to favour immediate rewards at the expense of long-term goals.

In behavioural economics, people are often defined as being "loss averse" and present-oriented because our brains are designed to prefer avoiding losses and instead seek instant gratification, so the concept of "buying now, paying later" is such an appealing one.

"The fact that our brains function in such a way is what makes buy now, pay later schemes the biggest threat to our financial wellbeing, by inhibiting our ability to save money and plan for our future selves, and perpetually trapping us in unhealthy financial habits. Self-control is a strong predictor of good financial habits, and these schemes are certainly not helping us in this sense."