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With one in three Irish consumers planning on using credit for their Christmas spending this year, Irish authorities have raised alarm bells about the risks of short-term credit, including credit cards and buy now, pay later (BNPL) products.
Ireland’s Competition and Consumer Protection Commission (CCPC) has cautioned consumers who are considering using credit to help fund their Christmas expenses.
With consumers looking to spend on average €1,000 each this Christmas, “it’s crucial that consumers keep track of their debts and when repayments will fall due”, said Grainne Griffin, the CCPC’s director of communications.
The CCPC’s caution is in conjunction with the rise of BNPL products, which it believes are being increasingly offered to Irish consumers both online and in store.
“It has never been easier to accumulate multiple debts and run the risk of becoming overwhelmed by repayments once the festive season is over,” continued Griffin. “With many consumers shopping earlier this year, this may mean that credit card bills and other repayments may also fall due earlier, potentially before Christmas.”
Currently, Irish regulators are in the process of re-classifying “credit” under the Consumer Credit Act to incorporate BNPL arrangements.
This comes as Swedish fintech giant Klarna officially launched its BNPL service in Ireland.
The service allows consumers who use Klarna at partner retailer online checkouts to split their purchases across an interest-free instalment plan.
However, despite concerns about the easy accessibility of BNPL, traditional forms of credit such as credit cards were found to be the most popular form of credit during the holiday period, with 29 percent of consumers suggesting they would use them.
In the 12 months ending October 2021, just under €10bn was spent on credit cards in Ireland, according to the central bank. Credit cards represent a significant proportion of unsecured lending in the country, with the Central Statistics Office reporting that 12.7 percent of all households have credit card debt.
Interest rates on credit cards can range from 13 percent to 26 percent, according to the CCPC, while the commercial Bank of Ireland reported earlier in the year that “nine in ten credit card customers are aware that it’s expensive to only pay off a small part of their monthly bill but most (80%) don’t know the interest rate on their card”.
Meanwhile, just 4 percent said they were likely to use store finance options, including BNPL.
BNPL: a small but growing market
According to research, only a few traditional retailers such as Littlewoods and Argos are offering BNPL products.
The first large scale provider in the country is Humm, an Australian company, which rebranded from the name Flexi-Fi, earlier this year. It provides BNPL services across 800 retailers in the country.
In the first half of 2021, its customer base jumped 95 percent, retail partners were up 71 percent and transaction volumes were up 44 percent on the same period last year, according to reports.
Across the Irish sea, in the UK, research by credit score company Equifax has found that more than one in ten shoppers expect to use BNPL over the festive period, with Black Friday being a major focus.
Yet, Christmas was also a major driver of BNPL use, with 9 percent of respondents acknowledging they would use BNPL to spread out the cost of buying presents.
BNPL is booming across Europe in general. The use of such services, like Klarna and ClearPay, more than doubled on Black Friday compared with last year, according to research by Dutch fintech Mollie.
Mollie’s research also found that the average value of BNPL transactions is coming in at 25 percent higher than transactions of other retailer-based payment methods.
This has prompted some of Europe’s regulators and politicians to consider the need for intervention. Echoing the CCPC’s Christmas credit warning in Ireland, UK MP Stella Creasy warned parliament that BNPL could become the “true villain” of Christmas if policymakers are not faster in ensuring proper consumer education and protection.
