When, on July 1, the EU imposed a €3 duty on every package under €150 being shipped from outside Europe, it predictably caused outrage among those for whom shopping online is a hobby or a necessity.
Particular chagrin will be felt by those who think nothing of ordering four or five outfits, trying them on, and sending them back – though those using Shein and Temu might well decide that prices are so low that it’s worth the tax.
The new duty is an irritation, but there’s something far more dangerous lurking in the way we pay for things we buy online – and it has come to the attention of the Central Bank.
The proliferation of buy now, pay later (BNPL) lending models is not, as many shoppers believe, benign, interest-free altruism from retailers.
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It is a business model with high costs and profits, is addictive in nature, and – if you’re not careful – it could prevent you from getting a mortgage.
Remember: if it looks like a loan and barks like a loan it is, in fact, a loan.
The downsides of BNPL have become lost in the convenience, and the model is something that financial regulators are now seriously concerned about.
You may not have heard of BNPL, but I bet you see a little pink box pop up when you’re at the payment screen in your favourite online store.
Along with options to pay by credit or debit card, you’ll often be offered a way to split the payments as well.
Klarna is an enormous Swedish bank and that’s its cute pink suggestion. Shopify, Affirm, PayPal Later and Amazon Monthly are other popular credit brands helping you afford more.
In stores, you’ll often find a card advertising split payments on the cash desk, particularly for larger purchases like a suite of furniture or electrical goods.
And the amounts involved, especially online, may not be high at all.
That’s the spiel, but in reality, the stacking of micro debts can become a huge problem for some.
Today, it’s a top for €50, but tomorrow it’s your Starbucks latte macchiato.
If you can buy a snack on BNPL (and you can) then you can lose all reality about what’s on tick – and when it needs to be repaid.
Add in some summer clothing purchases, a few prints for the wall, that specialised coffee and a new chair and, before you know it, you have 10 loans, not one.
The interest rate, or lack of it, is beside the point. Your reputation is at stake.
Under macroprudential rules, any single borrowing over €500 must be reported and recorded on the Central Credit Register. Since 2022, this includes BNPL.
Anybody considering you for a bigger loan, like a mortgage lender or car finance company, will check this first.
Too much debt or any missed payments on the small stuff means you lose out when you really need a loan for the big stuff.
How BNPL works
You make a purchase and the checkout process begins (in store or online). You’re offered, without asking, the opportunity to pay using Klarna, or its equivalent.
It can be very attractive to split payments over three, six or 12 months rather than dig deep now.
The BNPL provider only has to run a soft credit check. No poring over your bank statements or digging into your payslips.
If you can afford the first payment, you’re probably good to go.
No fees and interest free, right?
Well, not necessarily. Banks aren’t charities, so the business model works because the retailer is paying your fee.
International data shows that people are more likely – by as much as 20pc – to make higher value purchases and repeat buy if it’s on BNPL. That means bigger baskets and fewer abandoned sales.
Plus, the retailer doesn’t have to manage the financing, defaults, processing or admin. That’s all handled by the big bank provider.
No wonder they’re happy to pay your fee. They’re already doing it on those point-of-sale terminals, so it’s a small business cost to get more sales.
An American study in 2025 found 72pc of shoppers planned to use BNPL in 2026, and 82pc of Gen Z consumers express interest in the services.
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The Central Bank of Ireland found that shoppers spend 4.39pc more when they use BNPL compared to a debit card, and that they were over 22pc more likely to make additional purchases once they had bought three items.
Where’s the problem?
There may be no initial cost to you and, as long as you pay up on the date required for each and every loan, you’ll be fine, but US Federal Reserve data from 2024 reveals that 57pc of BNPL users use this credit line “out of necessity”.
That means weekly groceries rather than a new sofa.
Pete Lunn, a behavioural economist with the ESRI, believes its silent convenience means the model is also addictive, especially for those who have the least to spare.
According to the Central Bank of Ireland, “individuals displaying certain characteristics of financial vulnerability are using BNPL to a greater extent, more frequently and simultaneously across multiple providers”.
“These characteristics include a history of being refused credit elsewhere, being late on loan repayments previously, exhibiting low financial literacy, and overconfidence,” the bank said.
“While BNPL may be a convenient and affordable method to pay for products, our analysis highlights that it is being disproportionately used by those least equipped to manage the risks, raising concerns about debt accumulation.”
Biased behaviour
People like easy. The convenient option usually wins out. And filling out forms for loans or other financial products is rarely easy or convenient.
So a choice to just click is a lot better, and putting off paying sounds ideal.
Consumers rely on simple budget cues that can be systematically biased by payment deferral mechanisms like those inherent in BNPL.
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There is evidence that consumers mentally incorporate anticipated credit access into their present budget constraints.
Understanding how these financial products work is important for all consumers, but there’s no doubt that increased visibility and warnings about the implication of missed payments, late charges or legal fees should be as big and bright as that pink box.