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More than two in five buy now, pay later (BNPL) customers borrowed money to make repayments, Citizens Advice has found, as the cost of living crisis puts the payment method in the spotlight.
BNPL is never far from the headlines these days. The recent news that technology giant Apple is looking to grab a piece of this burgeoning market highlights the significance of this growing consumer payment trend.
Although the market continues to expand, so too do concerns from policymakers and charities about problem debt caused by this unregulated market. The latest body to speak out on this issue is the UK’s Citizen Advice Bureau.
Research from the charity has found that consumers are borrowing to pay off BNPL debt, including using overdrafts, borrowing from friends and family, loans and payday loans.
According to Citizen Advice, 26 percent of consumers used a credit card, the most popular borrowing method, to pay off a BNPL loan.
“Most of the people I speak to who are using buy now, pay later live off overdrafts and credit cards, so are using these for repayments,” said Millie Harris, a debt advisor for Citizens Advice. “It’s just relying on one debt to pay off another debt.”
She continued to describe the issue as “heartbreaking”, as in reality, it is just more debt and more creditors, on top of what consumers are already facing.
“What scares me most is how easily people can slip into using buy now, pay later. They come to rely on it much more quickly than other forms of credit,” she said. “It’s just a few clicks at a checkout. Too often that means people don’t realise how serious it is; that it is credit and there are consequences if they don’t repay it.”
Younger consumers are the most likely to borrow to pay off BNPL purchases, according to the charity.
It has been revealed that 51 percent of 18-34 year-olds surveyed borrowed money to pay off BNPL debt, compared with 39 percent of 35-54 year-olds and 24 percent of over-55s.
“The spiral of debt from buy now, pay later to credit cards, loans and even payday lenders shows it’s not a risk-free alternative,” said Dame Clare Moriarty, chief executive of Citizens Advice. “Buy now, pay later is part of the credit industry and must urgently be regulated as such.”
The charity has been calling for regulation to protect customers, including market-wide affordability checks and clearer information at checkouts, adding that it was worrying that they had found that more than one in ten BNPL customers did not fully understand how the repayments would be set up.
This lack of understanding was also highlighted by consumer campaign group Which? in January this year.
The group carried out interviews with consumers who use BNPL and uncovered what it described as an affordability distortion, and a lack of engagement with the fact that repayments will need to be made.
There is general consensus among policymakers that more needs to be done to regulate BNPL in the UK, and even some providers, such as Klarna, have welcomed "proportionate and fit for purpose" regulation.
At Money 20/20, panellists at one event said that it only remains unregulated due to a loophole in the UK’s Consumer Credit Act.
This was criticised as “outdated”, with a call for more financial education in schools, as well as better consumer protection and affordability checks for those who do use BNPL.
Although the UK has yet to bring in regulation, something which was not touted during the recent Queen’s Speech, Ireland has jumped ahead of other European countries in bringing BNPL firms in line with other credit service providers.
Under new rules, BNPL providers will now have to be authorised by the Central Bank of Ireland either as a retail credit firm or a credit servicing firm.
