Shopping with risk
Germans like to buy on credit
By Marieke Einbrodt
April 14, 2024, 9:41 a.m
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Buy today, pay later: Purchases on account and installments are popular in this country. Young people in particular use time-delayed forms of payment regularly and for higher-priced purchases. This is convenient, but it can become a debt trap.
One in four Germans used the “Buy now, pay later” payment option last year. This emerges from survey results from the latest retail report from the payment service provider Adyen. 2,000 consumers across Germany were asked about their consumer behavior.
Data from the study available to “Capital” shows that many consumers use delayed payment repeatedly: Two thirds of “Buy now, pay later” users who used this payment option once also make a purchase at least once a month above that, on average even 4.5 purchases per month. The shoppers surveyed most often pay amounts of up to 115 euros using credit-based payment methods. Goods that cost four figures are the exception. On average, those surveyed stated the amount of a “buy now, pay later” transaction was 281 euros.
The results of the Adyen evaluation show that younger customers in Germany in particular often shop on credit. A full 34 percent of Millennials (27-42 years old) used “Buy now, pay later”, while the figure for Generation Z (16-26 years old) was 27 percent. Survey participants from Gen Z said they shop by installments or invoice an average of 7.37 times a month, and Millennials just over five times.
All respondents most often stated the average price of a “buy now, pay later” purchase was in the two to low three-digit range. The younger the respondents are, the more likely they are to make more expensive purchases on credit: an average transaction that Gen Z respondents pay with “Buy now, pay later” amounts to 911 euros, which is the figure for Millennials the average value is 205 euros.
Invoice or installment?
Buy now, pay later – that’s nothing really new. Behind this are forms of short-term financing that have recently become particularly fashionable in online retail, but are also increasingly becoming popular in brick-and-mortar retail. Purchasing on account is well-known: Buyers order the goods they want and only pay for them when they have received them and want to keep them. The corresponding invoice will come from the retailer or payment service provider with the package, by email or letter. It contains information about the deadline by which payment is due. As a rule, there is 14 to 30 days left from the time the goods are dispatched.
Another option is installment purchase, in which buyers gradually pay off the amount due for their purchase. It is a loan whose term usually extends over several months. Although it sounds practical and convenient, it can be expensive. Buyers pay the later and staggered payment with interest, the amount of which is determined by the provider. This makes purchasing more expensive.
Whether consumers can even buy on credit usually depends on their individual creditworthiness. When it comes to invoice and installment purchases, retailers work either with banks or with special payment service providers such as Klarna or Paypal. Once you reach a certain purchase amount, it checks your creditworthiness with Schufa and other credit agencies.
Practical but risky
The convenience of delayed payment methods can become risky: low installments and late due dates that seem to be in the distant future can tempt you to make careless purchases. Consumers can quickly lose track of their bills and liabilities and quickly accumulate debt. Indebtedness has increased in the past year, especially among young people. This is shown by figures from the Debtor Atlas 2023 from the credit agency Creditreform. According to the data, consumers between the ages of 18 and 30 are the only group with more over-indebtedness in 2023 than in 2022.
Creditreform also cites the “buy now, pay later” payment options as the reason for the increased indebtedness among young adults, which younger, Internet-savvy and consumer-friendly target groups are increasingly demanding and using. This is also confirmed by Schufa’s current risk and credit compass: The number of newly concluded installment loan agreements rose from 7 to 9.1 million in 2022 alone – i.e. by around 30 percent.
A new consumer credit directive will soon protect against a “buy now, pay later” debt trap. The EU countries approved these in October 2023. It is intended to oblige retailers and payment service providers to present information about loans, such as their total costs, clearly and understandably.
In addition, customers should also have to go through a creditworthiness check for small loans under 200 euros as well as free and short-term loans – typical “buy now, pay later” payment methods. However, it may still take some time for the improved consumer protection to take effect: the EU member states have two years to implement the directive’s requirements into national law and three years to apply them.