When we want to have the latest fashion item, we might not think rationally. Does it really matter how much it costs? In contrast to traditional economic theory, humans aren’t rational when it comes to financial decision-making, and this is particularly true where fashion is concerned.

High Street fashion store cards have used this knowledge for a long time. These cards entice consumers by offering initial incentives which might seem too good to miss. The cards are offered by staff at the point-of-sale who promote the offers that the customer will receive if they sign up for a card, but information about interest rates is usually not discussed. Rather, consumers are advised to read the printed information later. Store cards typically charge between 25-30% interest and as a result, young consumers, eager to wear the latest fashion, are getting deeper into debt.

the devil’s debt”

A report on the MoneySavingExpert website (February 2017) showed the incentives and interest rates offered by various fashion brand store cards: Miss Selfridge offers money-off rewards depending on how much is spent, and charges 29.9% APR; New Look offers 20% off a second purchase and charges 28.9% APR; Topman offers free UK delivery on online orders four times a year and charges 19.9% APR; Topshop gives 15% off the first shop if it’s over £80 and has a rate of 19.9% APR; and Oasis’ 15% off “welcome treat” and free online delivery is offset by an whacking interest rate of 28.9% APR.  The MoneySavingExpert report explains how untrained store staff are given incentives to entice customers to sign up for their store cards. No wonder @MartinSLewis calls store cards “the devil’s debt“.

But according to a new article published for their Professional subscribers @BoF, fashion credit is changing. The new “wear now, pay later” trend is facilitated by Fintech start-up companies working with specific brands to offer consumers interest free, fixed monthly payments. This appeals to young shoppers who are increasingly demanding, but may find it difficult to get credit. Young consumers are more demanding from their brands including free delivery and free returns as well as flexible payment options. Among other outcomes of the wear now, pay later trend, online ordering is simplified, there are no credit checks. According to the BoF article, “flexibility around payment…can communicate a sense of trust“. As a result, sales in brands who offer this service are soaring.

If this sounds too good to be true, it probably is. Although the wear now, pay later credit arrangements don’t include high interest rates, consumers will still need to pay for their purchases. Making multiple wear now, pay later purchases may result in some consumers owing more than they can afford. The long-term effects of this initiative on consumers are yet to be known, but it’s likely the Fintech start-ups and the brands they’re working with will continue to succeed.