2020 was an incredibly challenging year for retailers. For some, the pandemic hastened a slow demise (Arcadia and Debenhams spring to mind), while others had to make drastic changes to their operating model, slashing costs and taking on additional liabilities in order to stay afloat.
While the recent roll-out of a vaccine has provided some welcome good news, fresh gloom descended on the retail sector at the start of this year with the institution of a third national lockdown that’s legislated to run until the end of March. By that time, a full year on from the first lockdown, the damage to many more brands, young and old alike, could be terminal.
Little wonder, therefore, that retailers are pinning all their hopes on online sales and are eager to implement new payment methods and nudges that drive incremental gains in conversion and maintain revenue. In times of trouble, every penny counts more than ever – but amid the rush to capitalise, one wonders how much debate is being had in the corridors of retail about whether the introduction of these measures is truly in the best interests of the consumer.
2020 was a year with many losers and few winners, but one business that indisputably falls into the latter camp is Klarna. Probably the best-known of the ‘buy now, pay later’ providers, Klarna already boasts over 9.5 million customers in the UK and is opening 95,000 new accounts every week. But the opportunity for Klarna, and other BNPL providers such as Clearpay, Affirm and PayPal, is even greater still; a recent Bank of America study predicts the market for such services to grow between 10- and 15-times its current size by 2025.
Their proposition to nervy retailers is compelling: a document produced by Klarna in 2019 proclaimed that adding Klarna at checkout can increase conversions by 44%, while it has also stated on its website that customers who pay in instalments spend 55% more. As such, the client base of BNPL providers, and consequently the number of people using their services, has soared: a November study from Compare the Market found that 35% of UK adults have used BNPL schemes more than they did before the pandemic (up to 54% among 18- to 24-year-olds), with 15% of respondents now using this option for all purchases when available (up from just 4% at the end of last year).
But among the impressive uptake numbers are worrying portents. A GlobalData survey in November found that 52% of BNPL shoppers had at some point been unable to make a payment through a credit plan they’d used. A UBS survey conducted in Australia last September found that the proportion of BNPL users on the federal government’s stimulus packages (JobKeeper and JobSeeker) was substantially above that of non-users, and that 60% of the respondents on JobKeeper believed they would have defaulted on their BNPL payments without government subsidies. Resolver, an online tool for consumer complaints, reported last August that they’d received 15,950 complaints relating to BNPL credit in under two years.
The calls for more stringent regulation of BNPL providers, long pioneered by financial campaigner Alice Tapper among others, finally bore fruit last week with the news that the sector would be brought under the regulation of the Financial Conduct Authority, meaning that providers will have to undertake affordability checks and ensure fair treatment of customers who are struggling.
This is welcome news, but should we not also be holding to account the retailers who have been so ready to hitch their wagons to these well-disguised lenders? Simply because the option is available to them does not mean that retailers are absolved of their responsibility to sell with integrity, nor the imperative that their business decisions are shaped by what is in their audience’s best interest.
Many retailers are doing admirable work in terms of advancing their credentials in sustainability and supply chain transparency and making a positive and influential contribution to various social, political and cultural issues. But it’s very difficult to square these efforts with the readiness with which these same retailers have adopted techniques and schemes that enable consumption beyond one’s means and obscure the realities of taking on debt, particularly at a time of financial insecurity for millions.
But BNPL is only one part of this issue. Once you start considering your checkout experience through the lens of your customer’s financial wellbeing, rather than with the aim of maximising revenue at any cost, you start to look at all sorts of nudges and cues in a new, unflattering light.
From ’408 people are looking at this right now’ and countdown timers, to ‘low-stock’ alerts and opt-out options dripping with guilt-trips, these tactics, dubbed ’dark patterns’ by UX designer Harry Bragnull in 2010, are widespread: a 2019 study from Princeton University and the University of Chicago examined roughly 11,000 shopping sites and found dark patterns on over 11% of them.
Retailers must ask themselves: are these notifications genuinely in place to help customers to make better decisions for themselves? Or are they there to hinder due and fair consideration? To close the sale and to hell with the consequences?
Of course, it’s very easy to make such observations and to pose such questions from the outside looking in. Retailers would argue that they are catering to the tastes of a generation craving instant gratification; or that reducing friction at checkout ultimately results in a better customer experience; or even that it isn’t their responsibility to make such judgments – that if the services are available in the marketplace, and their competitors are offering them, then they’d be foolish not to follow suit.
All of these excuses may have some validity to them. But in an industry where ‘brand purpose’ is on every CMO’s lips, we’ve come to expect more than the bare minimum of ethical behaviour from brands. As the old adage goes, a principle isn’t a principle until it costs you money.
Alex Manning is associate strategy director at Cult LDN + NYC.