The UK has witnessed a significant surge in the use of Buy Now Pay Later (BNPL) services, prompting concerns from the country’s financial regulator, the FCA, regarding the financial well-being of many BNPL users.
According to FCA research, approximately 14 million consumers, constituting 27% of UK adults, turned to BNPL services in the six months leading up to January 2023, as the cost of living crisis deepened. This marks a notable increase from the 17% of UK adults who reported BNPL usage in the 12 months up to May 2022.
Within the fashion sector, BNPL has emerged as a highly favored payment option, with most major retailers partnering with BNPL specialists.
The FCA’s findings underscore a «significant increase» in the number of individuals adopting BNPL for their purchases, with frequent users of this service facing a higher likelihood of financial difficulties.
Those who utilized BNPL more than ten times in the past year were over twice as likely to also have high-cost credit products (48% of users), compared to those who refrained from BNPL usage (22% of non-users). Moreover, BNPL users were nearly twice as likely to have accumulated more debt on credit products over the last year (51% of users compared to 27% of non-users).
Of concern, 27% of BNPL adopters had missed a payment on a bill or credit commitment in three of the last six months, a significant contrast to just 6% of individuals who had not adopted this financing method.
While the FCA lacks regulatory oversight over these products due to government delays, it is actively advocating for enhanced consumer protection against what it deems «potentially unfair and unclear contract terms» prevalent in the BNPL sector.
The FCA has engaged with BNPL providers and issued guidance after expressing apprehension that customers of payment services like PayPal and QVC were «at risk of harm» due to the complex nature of certain contract terms. Both firms voluntarily simplified their continuous payment authority terms to enhance consumer understanding, as noted by the FCA.
A review of the unsecured consumer credit market published by the FCA recommends that unregulated BNPL products be brought under the regulatory oversight of the FCA.
