Shop now, pay later' is the message online payments firm Klarna is using to entice people to spend, spend, spend in the run-up to Christmas.
But critics fear the boom in this payment method, which could result in one in ten shoppers using it to purchase presents, will create a personal debt mountain and leave many in fear of being harangued by debt collectors.
While the adverts are focusing on the positive – none more so than the 'get smoooth' tagline previously used by Klarna and featuring American rapper Snoop Dogg – the negatives don't get a mention. They are numerous. If purchases are not paid for, you could end up with a debt collector knocking on your front door demanding payment with interest – or issued with a fine if just a day late with money.
Persuasive: The Klarna 'Smoooth payment' ad with rapper Snoop Dogg
Swedish-owned Klarna is the biggest operator in the buy-now pay-later market with more than 15million customers spending £2.7billion a year in the UK.
Others include Clearpay, owned by Australian technology firm Afterpay, and British company Laybuy. Their business models are simple. Rather than use money in your pocket or bank account, customers are given a pitch to 'get the shopping experience that you deserve' – and not worry about footing the bill straight away.
Online shops such as Boohoo, Asos, Made and H&M have embraced these new companies as a way of grabbing more customers, though they hand over up to 5.4 per cent of every sale – plus 20p – for the privilege.
Customers are attracted by not having to pay for 30 days, or to pay in three interest-free monthly chunks, with the first one paid immediately.
Such payment options are given prominence on online shops. For example, on the Made website, customers can click a £599 button for a new sofa or pay '£199.67 per month (no interest) with Klarna' now and over the next two months.
Klarna stresses that those who use its payment options will not compromise their credit score provided they meet their payments. But it emerged last week that Klarna's losses are soaring due to a sharp rise in customers being unable to repay their loans.
Some providers, including Clearpay and Laybuy, hit customers with a £6 fee if they are just 24 hours late with their payment – then levy another £6 fee if the overdue payment is not made within the next seven days.
Debt charity StepChange fears the buy-now pay-later industry could leave many people facing financial ruin in the New Year if they are unable to pay for the goods they bought in the run-up to the festive season.
The charity's Sue Anderson says: 'Easy borrowing might be good for shop sales, but it raises the risk of many consumers sinking into debt.'
She adds: 'We need regulations in place to stop easy debt causing misery for more people. It is only going to get worse in the run-up to Christmas. Credit should not be sold as a lifestyle accessory. These buy-now pay-later offers are promoting a way of life that in many cases results in debt.'
One customer who has fallen foul of the debt trap is Chloe Porter, 24. She became aware of Klarna when its adverts popped up while she was browsing online.
The nursery nurse from Birmingham says: 'My finances were tight, but not out of control. But Klarna started appearing on pretty much every online checkout I used – and when I used it to buy clothes and soft furnishings I could not really afford, the debts just snowballed.' Struggling to meet the monthly payments, Chloe was sent correspondence explaining that her details would be passed to a debt collector if she did not pay up. 'I felt desperate,' she says. 'I was drowning in a sea of debt. But all the time I was being chased for money, Klarna still allowed me to buy more goods. Companies like this that target the young should be regulated.'
Chloe, who has a one-year-old daughter Poppy, turned to StepChange for help. It consolidated her debts that had grown to £5,000 and she is now slowly paying them off. Millions of shoppers welcome the likes of Klarna because it makes shopping easier when they are cash-strapped. It is also relatively straightforward to return items such as clothes that do not fit before they must be paid for. But last December, the Advertising Standards Authority banned Klarna from using adverts with the strapline 'a total mood booster' on the grounds that deferred payments do not necessarily make people feel better.
Campaigner Alice Tapper has set up a website Go Fund Yourself to highlight the danger of buy-now pay-later schemes. Tapper – who has 50,000 followers on social media and a degree in behavioural economics – says: 'Buy-now pay-later slips through the regulation net. There are no clear rules on how it should be marketed. Schemes that lead to poor decision making by some consumers must be better policed.'
Buried away in the small print of Klarna's terms and conditions, it states: 'Where payments are frequently missed, Klarna may use debt collection agencies to recover your outstanding balance.'
According to Citizens Advice, those chased for arrears by a bailiff can expect to be hit with an initial £75 penalty. Failure to pay up, resulting in a debt collector knocking on your door, can trigger a further penalty of £235 and a 7.5 per cent fee on any amount owed above £1,500. This means a debt of £2,500 may trigger total penalties of £150.
People unable to clear the debt face the further ignominy of being charged £110 for having valuables repossessed and sold at auction.
Clearpay's terms state: 'We give you till 11pm on the following day to make your repayment and then you will incur a late fee for a missed payment that is not resolved. This will be an initial £6 and a further fee of £6 if the payment is not made within seven days.' Provider Laybuy states: 'If you fail to pay within 24 hours of the due date, we will charge you a default fee of £6. If you do not rectify your default by making the missed instalment payment within the next seven days, we will charge you a further default fee of £6.
In February this year, the Financial Conduct Authority admitted the buy-now pay-later industry needed to be regulated 'as a matter of urgency', stating its practices could lead to 'significant potential consumer harm'. Unfortunately, it has yet to do anything, with regulation likely next year at the earliest.
In October, the Treasury published its own report on the sector with industry responses sought by January. On Friday, Klarna told The Mail on Sunday: 'We are only easy to use if you are able to repay. We do not offer an open line of credit with high interest charges like some credit cards do. The average outstanding debt is a mere £48 with more than 40 per cent of customers repaying early.'
The Financial Conduct Authority said: 'Buy-now pay-later products need to be regulated. We will consult on new rules soon.'