‘Significant’ increase in use of buy now pay later with frequent users more likely to be in financial difficulty

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There has been a “significant increase” in the number of people using Buy Now Pay Later options to purchase items, with those frequently using the service more likely to be in financial difficulty, the finance regulator has said.

Roughly 14 million people, 27% of UK adults, used Buy Now Pay Later (BNPL) to purchase something in the six months to January 2023, according to analysis by the Financial Conduct Authority (FCA).

This is up from 17% of UK adults who reported using it in the preceding 12 months to May 2022. 

BNPL is a way in which goods can be bought on credit, paid back in interest-free instalments. Popular providers include PayPal and Klarna.

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Research from the FCA also showed frequent users of BNPL are more likely to be in financial difficulty.

Those who used it more than 10 times in the last 12 months were more than twice as likely to also have a high-cost credit product (48% of users), compared to people who hadn’t used it (22% of people who hadn’t used BNPL).

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Users were also nearly twice as likely to have increased the amount of debt on credit products over the last year (51% of users compared to 27% of non-users).

More than a quarter of BNPL adopters (27%) had missed a payment of a bill or credit commitment in three of the last six months, compared to just 6% of those who hadn’t adopted the financing.

The FCA does not have regulatory oversight over such products, but has said it’s pushing for more protection for consumers from what it said are “potentially unfair and unclear contract terms” in the sector.

Work with BNPL providers has been conducted by the FCA and guidance issued after it expressed concern that customers of payments services PayPal and QVC were “at risk of harm” over how some contract terms were drafted.

Both firms voluntarily made their continuous payment authority terms easier to understand.

Buy Now Pay Later might appear to be a “very sensible option” to help manage budgets and it works for millions, said Sarah Coles, head of personal finance, Hargreaves Lansdown.

“However, for others it becomes a dangerous habit – encouraging them to buy things they don’t really need and can’t afford. As a result, those who lean heavily on BNPL are far more likely to stray into other worrying types of borrowing – from taking out high-cost credit to letting debts mount up, and missing repayments.”

A review of the unsecured consumer credit market published by the FCA recommended that unregulated BNPL products be brought into the FCA’s regulatory sphere.

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