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Hundreds of thousands of buy now, pay later (BNPL) transactions could have been carried out by children, while younger adults risk falling behind on payment terms, according to the Dutch Authority for Financial Markets (AFM).
In 2023, almost 600,000 transactions were carried out on iDEAL, the Dutch mobile payment method, via accounts in the name of a minor that can be linked to BNPL providers, the AFM has warned following an investigation.
This has prompted the national authority to call on the BNPL sector and the country’s legislators to quickly come up with an effective approach that stops the use of BNPL by children.
The average amount being accessed by children came to about €50, according to the AFM.
This concerns mainly users aged 13 to 17 years old who the AFM says probably circumvent the age checks of BNPL providers, with the regulator saying that there is a real risk that these transactions involve unauthorised BNPL use.
In principle, no credit of any sort, including BNPL, may be granted to minors, and the industry's own code of conduct in the Netherlands, which was enacted in October 2023, states that BNPL providers require their customers to be at least 18 years old.
The AFM also found that the BNPL market has continued to grow. In 2022, BNPL providers processed approximately 45m transactions with a total value of €4.8bn in the Netherlands.
The average number of transactions grew fastest among users between the ages of 18 and 24, rising by 32 percent.
Responding to the AFM’s findings, the Dutch Banking Association (NVB) said that it finds the results “worrying”.
“BNPL seems to be an attractive alternative if you just don't have enough money and still want to buy something. But in the eyes of the NVB, it too easily leads to financial problems,” the trade association said in a post on its website.
Behavioural nudges
The AFM warned of the potentially serious costs associated with late payment, saying that consumers under the age of 35 were most likely to incur late fees and to be transferred to a collection agency.
“We encourage BNPL providers to ensure that more customers pay on time and fewer customers are charged,” the regulator said.
For example, the AFM said it had worked with BNPL provider Riverity to look at the effect of a payment reminder by text message on the behaviour of more than 34,000 customers, and found that the relatively simple intervention proved effective as the share of customers who paid late and were charged costs decreased by one in five.
“With these types of adjustments, BNPL providers can reduce the number of customers with reminder costs,” the AFM says.
Environmental impact
The AFM's research also shows that for every €100 that a customer pays with BNPL, approximately €40 of goods are returned, which the regulator says has a negative environmental impact.
With BNPL transactions, the purchase amount is only debited if the customer chooses to keep certain purchases and not return them.
In addition, delivery and returns are often free, which the AFM says are factors that can contribute to customers ordering and returning more than necessary.
“We call on the BNPL sector, together with the web shops and the customer, to achieve transactions that pay more attention to the ecological footprint,” the regulator said.
One of the likely reasons why the AFM has made this intervention is because BNPL remains a regulatory grey area. Throughout different parts of Europe, including the UK, it has not yet come into the scope of consumer credit rules.
However, this is set to change for the EU, with the revised Consumer Credit Directive having been adopted in October 2023.
As a result of this directive, the BNPL sector will come under the supervision of the AFM by November 2026 at the latest in the Netherlands.
However, the Dutch Banking Association has said that action taken already and that incoming is not enough.
“Providers of BNPL and also the retail companies that offer this in their payment process can and must do much more to prevent consumers from running into problems when using these payment options,” the trade association said. “At the same time, it is also a joint responsibility of providers, parents, government and other stakeholders.”
