Amid mounting concerns about the unchecked rise of buy now, pay later (BNPL) services, a chorus of experts is urging swift action. The call gains strength from recent research, conducted by the Behavioural Insights Team and the Money Pensions Service (MaPS), that uncovers a significant shift in consumer behaviour.
The study reveals that one in five BNPL users, amounting to almost two million individuals, are now relying on this payment method to cover essential expenditures. Groceries (11 per cent), toiletries (eight per cent), household bills (five per cent), and fuel (four per cent) constitute the essentials now increasingly being financed through BNPL.
While the study confirms the convenience factor that BNPL offers, with 82 per cent finding it easy to understand and 76 per cent deeming it easy to manage and pay off, the darker side of this trend cannot be overlooked. Over half of the surveyed BNPL users (55 per cent) have pending payments, with 33 per cent juggling multiple outstanding bills. This financial fragility is concerning, as it paves the way for a potential debt cycle that could impact their long-term financial wellbeing.
Around 70 per cent of respondents admitted to utilising BNPL even when they originally intended to make full upfront payments. This behavioural shift raises concerns about a growing reliance on deferred payments and the possible repercussions on financial stability.
While BNPL has a veneer of simplicity, the study underscored potential pitfalls. A significant number (32 per cent) faced difficulties in managing their BNPL expenses, with 14 per cent missing payments and facing late fees. The reasons varied from prioritising other debt repayments (34 per cent) to not being aware of payment due dates (32 per cent).
One in 10 had taken money from savings (13 per cent) or used a credit card (10 per cent) to make a repayment.
This research echoes concerns expressed by advocacy group Which?, which highlighted the need for better information disclosure and potential regulatory oversight for BNPL providers. It emphasises that lenders offering BNPL are not required to be authorised by the Financial Conduct Authority, potentially leaving consumers with fewer protections.
Rocio Concha, Which? director of policy and advocacy, said: “In the midst of the worst cost of living crisis in decades, it is unsurprising that many more consumers are turning to BNPL to pay for essentials.
“Despite the many BNPL options on offer to consumers at the checkout, several providers offer scant information about the risks attached to using BNPL to pay – including the potential to fall into debt and the consequences of customers missing payments, such as the impact on credit scores.
“BNPL remains unregulated meaning lenders do not require authorisation by the Financial Conduct Authority, and consumers have fewer protections should things go wrong. Given more consumers are turning to BNPL to cover essentials, it is even more concerning that the government is reportedly reneging on previous commitments to regulate BNPL. Ministers should introduce plans for regulation as soon as possible.”
Previously, the government stated that it must regulate BNPL products in a “proportionate manner” to protect borrowers, while still enabling access to these beneficial interest-free products.
Ellie Lugt, senior advisor at the Behavioural Insights Team, suggests providers and retailers support customers by sending timely payment reminders and displaying simple disclosure notices “so that customers are clear on what they are signing up for”.
While MaPS has urged anyone with BNPL concerns to utilise its “free, impartial help and guidance” at www.moneyhelper.org.uk.
Jackie Spencer, head of money and pensions policy at the MaPS, said: “This research shows that many people are using it when they hadn’t intended to and spending more because it was available. It’s absolutely crucial that they make sure they can afford the repayments and don’t risk turning a short term product into long term debt.
“If you’re struggling with buy now, pay later, or any credit repayments, I’d urge you to seek help today via our MoneyHelper service. You don’t have to go through this alone.”