bnpl risks
Europe Insights Paytech

BNPL Remains a “Wild West Unregulated Market” as Users Continue to be Unaware of Risks

Buy Now Pay Later (BNPL) services’ popularity has continued to grow over the last year. However, research from the financial education charity, the Centre for Financial Capability has revealed that despite this growth, consumers are still making mistakes when it comes to making payments on time. 

BNPL is a form of unregulated short-term financing which have become increasingly popular, despite the financial risks. Users, predominantly young adults, who are not fully aware of the high hidden charges and risks are being encouraged to use these methods to finance shopping.

Buy Now, Pay Later schemes are a form of short-term financing that allow consumers to pay for their shopping over a period of weekly or monthly instalments, rather than the full amount upfront. These schemes include Klarna, Clearpay, Laybuy and PayPal Credit. Several banks including NatWest, Virgin Money, HSBC and Monzo have also all launched BNPL products.

The Centre for Financial Capability found that around a quarter of those who have used BNPL have been charged late payment fees, which rises to a third of 18-34-year-olds. Shockingly, around a quarter of BNPL users have missed one or more repayments in the last six months, and of those, over a quarter had been contacted by debt collection agencies.

This is especially concerning when looking at the bigger picture and how many people use BNPL. A third (33 per cent) of UK adults have used Buy Now, Pay Later services in the past. This rises to 40 per cent of 18-34-year-olds.

End-of-year BNPL reliance

The Centre carried out the same polling in both 2021 and 2022, but the findings from 2023’s polling also show high levels of anxiety over Christmas and a continued high level of usage of the services across the age groups, amid growing economic uncertainty and rising living costs this year.

During the Christmas period last year (2023), 30 per cent of respondents felt anxious about money, budgeting and debt – nearly one in three. When asked how anxious they felt about money, budgeting and debt during the Christmas period in 2022, 20 per cent of respondents responded that they felt anxious.

When asked why they were using BNPL, a quarter said it was due to the current increase in the cost of living and inflation. For those aged 65+, this number rises to 30 per cent. Furthermore, nearly a fifth (17 per cent) have used or intend to use Buy Now, Pay Later services to pay for additional costs at Christmas, and over a quarter (28 per cent) used or intend to use the services because they were unable to pay for full costs at the time.

Users aren’t aware of the risks

Around a fifth of Buy Now, Pay Later users are unclear about what the late payment fees would be if they missed a repayment (21 per cent) and unclear about the impact on their credit score if they missed a repayment (21 per cent).

Twenty-two per cent of those who have used Buy Now, Pay Later services have been charged late payment fees. This rises to 32 per cent of 18-34-year-olds. Furthermore, around a quarter of those who have used BNPL services have missed one or more repayments in the last six months when using the services. This rises to 34 per cent of 18-34-year-olds.

Of those who have missed repayments in the last six months, around two-thirds have missed payments twice or more. Over a quarter of those who missed repayments had a decreased credit score (29 per cent) as a result, or had been contacted by a debt collection agency (27 per cent).

Too good to be true?

Although the Buy Now, Pay Later initiatives are generally interest-free, the providers charge for any missed payments and customers might be tempted to spend more than they can afford. If payments are late or missed, this affects a person’s credit score.

The Buy Now, Pay Later sector in the UK is currently unregulated, meaning that there is no duty for the providers to run background and affordability assessment checks on the users. This allows people to get into further debt, as they could rack up multiple bills from separate late payments to the schemes. Clearpay charges 25 per cent of the original purchase price, which is required to be paid at once and if this is missed, it will use a debt collection agency to recover amounts.

The Centre for Financial Capability is a charity with the mission of ensuring every primary-aged child receives an effective and high-quality financial education by 2030. It has a long-term commitment to financial education and research.

Wild west unregulated market
Jane Goodland, trustee of The Centre for Financial Capability
Jane Goodland, trustee of The Centre for Financial Capability

Jane Goodland, trustee of The Centre for Financial Capability said: “These figures reveal the ongoing prevalence of Buy Now, Pay Later schemes, and the dangerous financial risks that users face in this wild west unregulated market.

“As the ongoing cost-of-living crisis continues to impact the British public, it is apparent that many users are increasingly reliant on these schemes, without fully understanding the risks involved. Most worryingly, our findings released today have revealed the significant number of those using the schemes who have fallen victim to late payment fees, poor credit scores and even contact by a debt collection agency.

“For a third year in a row, our polling shows the high usage of BNPL across all age groups, despite some of the clear risks involved. The government have promised regulation on this market but we are still yet to see this.

“As trustee of a financial education charity, I recognise firsthand the urgent need to ensure that consumers are protected from dangerous financial trends, such as Buy Now Pay Later. At the very least, we must offer a high-quality and effective financial education to all people from a young age, so they feel equipped with financial resilience skills to face these emerging trends.

“Financial education is by no means a silver bullet, but financial education, coupled with government regulation on BNPL services, can ensure that people are best protected and do not face unnecessary financial suffering.”


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