We wanted to understand why, all of a sudden, all these people were so concerned about our customers having trouble making ends meet. And above all, why this type of service is exploding everywhere in the world, whether it’s split payments (in 3 installments, for example) _{or deferred payments} (usually a month later).

And honestly, when we started pulling at the thread, what we discovered really freaked us out.

The deferred payment sector hasn't been around for long, but in Europe, it already looks like this:

Just a few years after they were founded, _{the valuations of these companies} are already astronomical. For example, Klarna is worth 30 billion euros. The same goes for Afterpay. A few comparisons to give you an idea of how crazy this is:

• 30 billion is more than the combined valuations of Carrefour, Bouygues, and Renault.
• The growth in Afterpay's valuation since it was founded 6 years ago is faster than Facebook's was at the same stage.
• Klarna is already the startup with the highest valuation in Europe.

And French players that have barely started are already posting record-breaking fundraising rounds (here or there).

But what explains why these companies are worth so much money in such a short amount of time?

In some cases, buy now, pay later services can have real social utility: they allow people in financial difficulty to purchase essential items they cannot afford immediately. It is practical for certain expensive equipment that they can spread the cost of over several months or years: cars, refrigerators, washing machines, etc.

But the thing is, these services are primarily used to buy… clothes. In the UK, this is the case for 90% of buy now, pay later purchases.

In fact, for clothing brands, this “payment convenience” is almost miraculous. They can install it on their site in 3 clicks, and their revenue increases almost instantly by at least 20%. And if you are a consumer, you will spend on average 68% more if you use their service! Since the founders of these payment companies to the brands that use them, everyone is blown away: “something huge is really happening,” “it’s magic,” and so on.

Naturally, brands are willing to pay a premium: they pay these financial services _{around 4% of the transaction amount}. And since the global online clothing market is worth nearly $500 billion, that adds up to a lot of money—which explains the massive valuations of these new “unicorns.”

So... what’s the problem? As always, when so much money is created in such a short time, someone eventually has to pick up the tab.

The debt trap

With this type of installment or deferred payment, the merchant covers the service fee, so there is no interest for the customer to pay. But let’s call a spade a spade: since customers have to pay it back later, it is, in fact, debt. With all the risks that entails.

You might think people aren't foolish and won't spend more than what they have in their accounts, right?

Except that in this scenario, everything is designed to make us live beyond our means.

First, there’s the brands’ marketing. On one hand, they make clothes desirable with incredibly tempting photos and ads all over the web. On the other, they create the illusion that these dream outfits are accessible to everyone, even those on a tighter budget: Dreaming of dressing like Rihanna but it’s too expensive? Just pay a small amount now and the item is yours. It’s incredibly hard not to give in.

Then, there’s the marketing from these financial services themselves. When you visit these “fintech” websites or see their ads, it doesn’t really feel like you’re dealing with banks, but rather with ultra-stylish fashion brands.

Flashy colors, repurposing viral memes, pop culture tropes : these services go to great lengths to target a young audience.

However, this younger demographic is particularly vulnerable to financial instability, as evidenced by the recent lines of students waiting for food aid. The result: in the UK, where buy-now-pay-later services have been around longer, last year 18% of 18-24 year olds failed to pay off at least one of their debts on time. And when their customers don't pay, these "cool" startups sometimes send in debt collection agencies. In fact, concerns about the risk of over-indebtedness are so high that more than 70 British MPs are calling for the sector to be regulated (under the poetic banner "Stop the Klarnage," named after the leading buy-now-pay-later service there, Klarna).

You might be thinking that in France, we’ll be more vigilant and do a much better job? For now, things aren't looking great. These buy-now-pay-later startups have no reason to change their marketing practices for the French market (as shown in pictures). There’s also no reason to believe they’ll be any better than they are in the UK at assessing a customer's ability to repay before approving a payment (in France, these services have very little data to assess customer solvency, whereas in the UK, everyone has a "credit score" based on all their outstanding loans).

And above all, beyond the individual risks of over-indebtedness, there is a collective risk: at a time when the climate emergency requires us to produce less, buy-now-pay-later services push us to consume even more... and therefore pollute even more.

The overconsumption society

What brand can say no to an almost instantaneous increase in revenue? Especially when all their competitors have already jumped on the bandwagon?

Like the predict many financial analysts, deferred payment is becoming a market standard—essentially, it will soon be available on all e-commerce sites. More worryingly: as one industry player reveals, deferred payment is “not only a lasting phenomenon but is increasingly expanding into traditional retail.”

In other words, this type of payment method is likely to be rolled out in physical stores as well: this would mean the total volume of clothing sold worldwide could increase by 20 or 30%... That’s billions of garments produced that never should have been. And that is truly the last thing the planet needs... Let’s remember that if the textile industry wants to do its part to meet _{the Paris Agreement} goals on global warming, it must drastically reduce its production volumes, and do so right now.

These deferred payment services will further exacerbate the current environmental catastrophe. In fact, they render brands' efforts to limit their impact obsolete. What is the point of having replaced all store light bulbs with low-energy LEDs if, at the same time, Sephora introduces deferred payment on its American site and announces a 35% increase in average basket size ? Is this really serious?

Solutions to resist deferred payment

Perhaps the most terrible thing about all of this is seeing the extent to which deferred payment has reinforced an absurd distribution of wealth:

• On one side, in the real economy, there are factories that have been weaving and sewing clothes in often terrible working conditions for decades, scandal after scandal
• On the other hand, there are deferred payment financial intermediaries that ruin the lives of vulnerable people and exacerbate environmental problems, while making their founders billionaires almost overnight.

So, if you’ve read this far, you might be oscillating between wanting to smash everything and wanting to drown your sorrows in a drink that supports French winemakers. In short, you’re thinking it’s hopeless. Cheer up—there’s actually plenty we can do. As usual, we need to act on three fronts: the people who buy, the companies that manufacture, and the government that sets the rules.

1. For those of you who buy: don’t forget that paying in installments means going into debt... and often buying something you didn’t really need. Before choosing to pay in installments, try asking yourself: “Would I buy this piece of clothing if I had to pay for it in full right now?” If the answer is no, skip it.
2. For brands: we aren’t pointing fingers at every brand that has installed these payment options... You might have thought that deferred payment was a win-win—a convenient option for your customers and extra revenue for you, especially during these complicated times. You now understand that there are losers, too: in the short term, the most vulnerable people, and in the long term, the environment.
3. For the government: this sector needs urgent regulation in France, as is going to be the case in the UK, or in Sweden where merchants will be required to offer deferred payment only as a secondary option for customers. Stricter oversight of this sector seems already under consideration by some members of parliament in France. That’s a good thing, but this discussion seems to be taking place within the framework of a mission on over-indebtedness. However, given what we discussed above, it would arguably be better placed within the framework of climate legislation... Oh, and speaking of the government, it would be nice to avoid using public money to fund these new services, as is currently the case via the public investment bank. Funding our businesses is good, but protecting our citizens is even better.

If we manage to regulate this sector, we can limit the damage... But deferred payment is only a symptom of much deeper problems. If we want to make the textile industry sustainably more virtuous, we must also challenge the beliefs that led us here.

Among them is the idea that success means growing at any cost (we already talked about this at length here). Today, many brands are rushing to pay a portion of their transaction amounts to a financial intermediary to boost their revenue... Isn’t it time these brands chose to pay factories better and relocate production instead?

There is also the belief that as consumers, we need everything, right now. That we need this t-shirt and can't wait a few more weeks. And that we'll manage to pay for it later. That we can always live on credit.

Finally, there is the illusion that, collectively, we can also always live on credit. That we can spend the equivalent of 1.7 Earths every year to meet our needs. That we can pollute now and that future generations will surely find a miracle solution to get us out of this mess.

Do we really want to take that bet?

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Who are we to say that? 
You are on La Mode à l’Envers, a blog run by the clothing brand Loom. The textile industry is heading for trouble, and the planet is paying the price. So, everything we learn about the sector, we try to explain to you here. Because making sustainable clothing is good, but revealing, sharing, and inspiring is even more powerful.
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