As we approach the festive period, Buy Now Pay Later (BNPL) companies are being urged to show restraint. When you consider that BNPL giant Klarna has seen a 59% increase in the number of retail partners over the last 12 months, this says everything. The company now works with a staggering 22,000 companies in the UK, with tech giant Apple set to launch its own BNPL service in 2023.
Consumers using credit cards to make Buy Now Pay Later payments
Evidence suggests that many consumers in the UK are using credit cards to cover BNPL instalments. The concept of BNPL revolves around spreading payments over a set period to reduce financial pressure. However, using credit cards in this situation simply delays the increase in credit card debt, with many consumers on the verge of serious financial problems.
A recent report by the Bank of England suggests that UK households spend, on average, an extra £740 during December. There are serious concerns that much of this additional spending could find its way onto credit cards after using readily available BNPL services.
Charity report highlights problems
The StepChange charity carried out a recent survey regarding the use of BNPL services. Feedback found that 87% of those with a Buy Now Pay Later contract had at least one other type of consumer debt, credit card or loan. Almost 50% were also struggling with household bills and credit repayments, with 17% defined as in severe financial difficulty.
Many believe that the problem revolves around the idea of affordable stage payments. The idea is relatively straightforward, using surplus cash to cover three or more repayments. The problem is that the concept of “affordable stage payments” is compelling and can see many people overstretching their finances. Once you fall behind with, for example, credit cards or loan payments, and you have additional BNPL finance to service, it isn’t easy to get back on track.
Financial Conduct Authority BNPL review
As the FCA stands on the verge of introducing tighter regulations concerning BNPL services, they released an interesting review. Some of the standout information was as follows:-
- 75% of BNPL users are under 36
- The majority are female
- BNPL services lead to fewer abandoned online shopping carts
- BNPL services mean consumers are likely to spend more
There is no doubt that BNPL services are proving extremely useful to millions of consumers worldwide. However, let’s not forget why they were created – to increase retail sales. Many experts believe that the pandemic was the flame which lit the blue touch paper on an industry which is headed towards multi-billion dollar status.
Summary
Consumers and retailers are being urged to show restraint as we enter the festive period. The the cost of living crisis continues to bite and many people are desperate. Used sensibly, there is no doubt that Buy Now Pay Later services are handy with discretionary and everyday spending. However, there are concerns that some consumers are eventually switching BNPL debt to their credit cards. Which in many ways, defeats the point. As we await further information from the UK government regarding BNPL regulations going forward, concerns are growing about an expected explosion in Buy Now Pay Later debt over the festive period.
