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Buy now, pay later (BNPL) is booming in Europe, research by Mollie and Equifax shows, but could Black Friday end up causing financial woes for consumers?
The use of BNPL services, such as Klarna and ClearPay, more than doubled on Black Friday compared with last year, according to new research by Dutch fintech Mollie.
The average value of BNPL transactions is also 25 percent higher than transactions of other retailer-based payment methods.
This follows research by credit scoring company Equifax, which found that more than one in ten shoppers expect to use BNPL over the festive period, with Black Friday being a major focus.
Ten percent of respondents said that they had expected to use BNPL for at least one of their purchases during the Black Friday and Cyber Monday period, which is more than double the 5 percent that ended up doing so last year.
Christmas was also a major driver of BNPL use, with 9 percent of respondents acknowledging they would use BNPL to spread out the cost of buying presents.
“There is a lot of pressure on consumers’ wallets at the moment, which is making people look to payment methods that offer them financial flexibility,” said Ken Serdons, chief commercial officer at Mollie.
It is for this reason that it makes sense that fintechs such as Klarna have been so popular this Black Friday, Serdons continued, pointing out that these companies have performed “phenomenally well”.
“The increase is in-line with this growing trend towards more optionality in how consumers pay for goods,” he said.
Yet this optionality could also be leading consumers into a debt trap.
Data compiled by Barclays, the UK bank and credit card supplier, found that BNPL users’ knowledge of the products is patchy, with two in five respondents (39 percent) admitting they lack a full understanding of what they are signing up to when they enter a BNPL credit agreement.
Moreover, 52 percent of respondents were unaware that unregulated BNPL providers do not have to carry out robust affordability checks, as traditional credit card companies need to.
This comes as more than a quarter (27 percent) of UK adults have used BNPL, according to the Barclays study.
Of those, almost half (46 percent) say they are likely to do their Christmas shopping using this payment method to purchase gifts for friends and family, enabling them to spread the cost out over several months.
What is more, 36 percent of respondents admitted to using BNPL to spend more than they can afford, while 35 percent expect to use BNPL more often as the cost of living increases.
“This research shows that more must be done to educate consumers using unregulated ‘buy now pay later’ products,” said Antony Stephen, chief executive of Barclays Partner Finance.
Too many people are taking out these loans without realising the impact it could have on their finances and with festive shopping in full swing, he warned. “It’s important shoppers don’t run the risk of signing up to agreements, which they may struggle to repay affordably in future.”
Recently, UK parliamentarian Stella Creasy expressed similar concerns, noting that BNPL could become the “true villain” of Christmas, citing its success as a revolution in how consumers get access to credit in the UK.
The UK’s Treasury department has also opened a consultation on the issue, which is due to close in the New Year.
The Treasury has concluded that BNPL regulation should include the application of the FCA’s current rules on creditworthiness to BNPL agreements, noting that concerns have been raised about the unclear or inconsistent use of credit reference agencies by sellers offering BNPL options.
“To protect consumers against taking on more debt than they can comfortably afford to repay, and to ensure minimum standards exist across the sector, we believe regulation should ensure all BNPL providers are required to undertake appropriate affordability assessments, consistent with those in place for other regulated consumer credit products,” Stephen agreed.
Once the consultation has closed, it is likely that the Treasury will begin crafting regulations for the BNPL industry.
Whether this regulation means that people get turned off using BNPL products remains to be seen, however.
