With this payment trend, you’ll never have to wait for pay day again

category: Trends

sectors: Retail

Trying before you buy used to be unique to physical shopping. With online businesses striving to offer consumers as much of the physical shopping experience as possible, brands needed to find a way to offer e-commerce customers this trial period. A new payment method offered by individual payment servers just as Paypal Credit and Klarna, allow them to do just this.

Having the freedom to try items first makes consumers spend more frivolously. ‘Pay later’ offers fewer (immediate) consequences to a spontaneous retail therapy session, and who can say no to that?

Bringing this online ‘try before you buy’ concept in to the UK mainstream is Swedish group Klarna. Partnering with ASOS, Klarna’s loaning option is available at the online checkout offered as ‘Pay later with Klarna’. Shoppers then have 30 days to pay back their debt. This allows consumers to buy lots of clothes, try them on and return them – only paying for what they keep.

Encouraging this level of returns has its own implications. According to Barclaycard, 31% of Brits say they are more likely to return items they purchase online using ‘try before you buy’ “because they don’t have to pay for the item beforehand”. Now it’s common for customers to order multiple items with the intention of returning all but one. You can read more about returns in retail here.

Paypal is also marketing a new way of loaning money with Paypal Credit. Paypal account holders simply need to pass a credit check and they can automatically receive a 0% interest loan on purchases over £150 for four months. Luring customers into their new payment plan, their website explains: “If you’re planning a weekend away or fancy splashing out on a new wardrobe, PayPal Credit is the perfect way to spread the cost of those larger purchases.”

Image courtesy of Klarna

"This allows consumers to buy lots of clothes, try them on and return them – only paying for what they keep"

Stepchange, the debt advice charity has raised concerns over the ease of borrowing money with ‘pay later’ schemes. Speaking to the Financial times, Peter Tutton, head of policy at Stepchange, said “Credit should never be marketed as a flippant thing or something easy and convenient.”

Although both Klarna and Paypal Credit offer an inexpensive way to borrow money for a short amount of time, does this mean people are spending lots more than they usually would?

One London-based student told the Financial Times that she doesn’t buy more, but her average spend goes up a lot. “I wouldn’t say I’ve drastically started to shop more because of Klarna becoming available, but I would definitely say it’s increased the likelihood of me buying something expensive online.”

Offering this payment option not only keeps customers happy, it encourages them to spend more than they originally would have.

Image courtesy of Paypal

“Credit should never be marketed as a flippant thing or something easy and convenient" – Peter Tutton, head of policy at Stepchange

H&M recently partnered up with Klarna to work towards the ultimate multi-channel shopping experience. Speaking to Klarna, Daniel Claesson, Head of Business Development H&M group, says “This partnership will bring tailormade payment solutions to our customers and accommodate evolving shopping patterns and needs. This includes the possibility to “try before you buy” which is very relevant to online fashion retail today and to pay with their mobile phone directly through the H&M app both instore and online.”

Despite having some moral issues surrounding it, consumers enjoy being able to buy what they want, when they want it. As Claesson put it, ‘try before you buy’ is highly relevant to online fashion retail. We can already see it popping up more frequently in online checkouts. Topshop, Schuh and & Other Stories have jumped on the bandwagon and we can expect to see more high street stores following suit in the coming year.