M&S to offer 'buy now pay later' service with Clearpay

Marks & Spencer will offer shoppers a new way to pay for clothes and homeware online with Clearpay, a 'buy now pay later' service that lets you spread out payments interest-free. But should you use it?

M&S has had a tough year after crashing out of the FTSE100 in September and earlier this week revealed profits had slid 17% in the first half of the financial year thanks to poor clothing and home sales.

To balance its books M&S is making a range of changes, including cutting stores, offering M&S food online and giving online shoppers the ability to pay by instalments.

However, while no interest is charged by Clearpay, there are penalties if you fail to pay on time and if you miss a payment it will affect your credit score.

Here we explain what Clearpay is, how the new payment option will work for M&S shoppers and set out the risks of the short-term borrowing.

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What is Clearpay?

Clearpay is the UK arm of the Australian payment service Afterpay.

It appears at the checkouts of online retailers offering an alternative way to pay for your shopping.

Clearpay launched in the UK earlier this year and is headed up by a former PayPal chief, Carl-Olav Scheible.

Currently, it has 226 partners in the UK including Boohoo, Urban Outfitters and Pretty Little Thing.

How M&S Clearpay works

From mid-November, M&S will offer online shoppers buying M&S clothing or home products the choice to pay with Clearpay in addition to credit and debit card options. However, you won't be able to use Clearpay in M&S stores or to purchase food.

Clearpay will allow M&S.com users to spread the cost of a purchase of at least £30 up to a maximum of £800 over four instalments.

The first instalment is set at 25% of the purchase price and paid at the checkout; the remaining three payments are staggered at two-week intervals across a maximum of six weeks.

So if you had a basket worth £300 you would pay £75 upfront and then make three more payments of £75 to pay off the balance.

Payments are taken automatically from a nominated debit or credit card, so you must ensure you have enough money to cover each instalment.

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How much does it cost?

Using Clearpay with M&S will be interest-free - as long as you pay on time.

If you're late you'll be hit with a £6 fee by 11pm the day after the due date and another £6 fee if no payment is made within seven days.

For each order of £30 or above, fees are capped at 25% of the original order value or £36, whichever is less.

However, if you fail to make a payment Clearpay will report this to credit reference agencies which will impact your credit rating. The hit to your credit score could make it harder to get other forms of credit, such as a mortgage, in the future.

• Find out more: how to improve your credit score

Who can use Clearpay?

You need to be at least 18-years-old, have a valid email address and phone number, a UK credit or debit card and be living in the UK to qualify to use Clearpay.

But unlike rival 'buy now pay later' firms targeting millennial shoppers, like Klarna and Laybuy, Clearpay does not offer credit and no credit application is involved.

Instead, it may conduct a pre-authorisation of your nominated payment card. This may involve placing the funds in your account on hold each time you make an online purchase, but this will not exceed your first instalment.

As Clearpay's approval process doesn't involve a credit check you may be able to use it even if you have a poor credit history. The firm told Which? that customers start off on lower limits which only increase through the demonstration of positive repayment behaviour.

• Find out more: how to check your credit score for free

How will returns work?

If you need to return an item this will be processed by M&S. It will inform Clearpay of the update to the order and adjust the instalment plan accordingly.

It's worth noting that orders you make using Clearpay cannot be returned to M&S stores, unlike online orders paid for by card. Clearpay orders can only be returned through the Post Office or CollectPlus, so this may make it more of a hassle for you.

What happens if M&S or Clearpay go bust?

Clearpay told Which? if a retailer went bust, it would ensure that any affected customer who has not received their order, would be fully refunded.

It also says as all transactions and payments are paid for with a credit or a debit card, all standard card protections including Section 75 and chargeback apply as normal.

Should you use Clearpay?

If you get paid weekly or sporadically this new way to pay could offer some flexibility to your budget.

However, you should be aware that using Clearpay and other 'buy now pay later' options could tempt you to spend more than you set out to. In fact, on the Clearpay website aimed at retailers, it states shoppers tend to spend 20-30% more when using the service.

And while it might be convenient to defer payment in the moment, it could prove a hassle later on if you want to return what you buy online, as you will have to go to Post Office or use CollectPlus, rather than an M&S store .

When given the option to 'pay later', you should really think about whether you can afford what you are planning to buy.

With Clearpay, you won't be able to stop payments being charged to your debit or credit card, which means you won't be able to prioritise other payments like your rent or mortgage if unexpected costs crop up and things get tight.

Although Clearpay has a cap on fees and will restrict borrowing to stop shoppers from falling into a debt spiral, you might incur fees in other ways like going over a credit or overdraft limit with the card you've set up for automatic payments.

Have you used Clearpay? Share your story

Have you used Clearpay to make a purchase? What was your experience?

Did you run into any trouble with your credit history or run up unmanageable debts?

Did you accidentally use the payment option at the checkout or had any problems with trying to pay back what you borrowed?

We want to hear from you. Contactmoney-letters@which.co.ukwith your story.