Recent research reveals that nearly one in four UK users of Buy Now, Pay Later (BNPL) services have incurred late repayment fees. This BNPL users trend has been particularly prevalent among young consumers.
Rising Popularity and Risks for BNPL users
BNPL, a popular but unregulated form of credit, allows shoppers to purchase items like clothing and food delivery in mostly interest-free installments.
The rise in BNPL usage, especially over the past year, can be attributed to its ability to defer full payment at the time of purchase. However, this convenience comes with risks, as late repayments can lead to additional charges. Concerns from regulators and consumer groups highlight the potential for increased indebtedness among users.
The Centre for Financial Capability, a UK-based financial education charity, commissioned a study that found that 22% of BNPL users missed at least one payment in the six months leading up to December 2023. Among these, over a quarter experienced a decline in their credit score or were contacted by debt collectors.
Young Consumers Most Affected
Young people aged 18-34 were most affected, with 34% incurring late fees. Interestingly, while the overall incidence of late fees among BNPL users slightly decreased in 2023, there was an increase in late fee charges for those aged 55 and above, from 7% to 10%.
Jane Goodland, a Centre for Financial Capability trustee, expressed concern over the reliance on BNPL schemes. She especially highlights the ongoing cost of living crisis. She noted that many users, particularly young people, are unaware of the associated risks.
The charity’s survey also revealed that 21% of BNPL users were unsure about the late repayment fees and their impact on credit scores. The popularity of BNPL is rising among those aged 25-65, with the highest usage among the younger demographic. Around one-third of UK adults have used BNPL, rising to 40% among 18-34-year-olds.
Fintech companies like Klarna, Clearpay, Laybuy, and PayPal Credit have been pioneers of BNPL. Recently, banks such as NatWest, Virgin Money, HSBC, and Monzo have also started offering these products.
BNPL Usage Trends and Government Action
The survey highlighted that a quarter of BNPL users or potential users are driven by inflation and the rising cost of living. That is even more pronounced among those over 65, with 30% citing cost of living as their primary reason for using BNPL.
Despite its interest-free nature, the lack of regulation in the UK BNPL market means providers aren’t required to conduct affordability checks. Consumer groups warn that this could lead to accumulated debt from various late fees across different providers.
The UK government, recognizing the need for oversight, announced plans to regulate interest-free BNPL products in February 2021. A consultation was conducted in early 2023, with plans to bring the sector under regulation. Similarly, in Australia, the government announced plans in May last year to regulate BNPL under consumer credit laws.
Goodland emphasized the urgency of protecting consumers from potentially harmful financial trends like BNPL. She advocates for financial education and government regulation to safeguard users.
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