Have you ever used a Buy Now Pay Later (BNPL) service to buy something? If not, you’ll soon be in a minority, as around half of the population have now used BNPL at some point. But just because its popular doesn’t automatically mean it’s safe.
It’s marketed as swift, convenient and easy-to-use – with the added lure of being able to check you really want the goods you’re buying before you actually pay for them. Initially, BNPL popped up in the world of online shopping, although it’s now often available on the high street too.
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Yet despite the rapid growth of this innovative credit product, regulation has failed to keep up. And Buy Now Pay Later has turned into buy now, regret later for a number of clients we see who have found it contributing to their debt problems.
Although it’s been years since the previous government agreed that BNPL ought to be regulated by the Financial Conduct Authority (like other kinds of credit such as credit cards, overdrafts or store cards) it still hasn’t happened – although the incoming Labour government has promised to introduce regulation soon.
At StepChange, this lag concerns us, and we need to see the government press ahead with the promised regulation as soon as possible. This is especially important because BNPL users often have higher financial vulnerability than others, and this type of credit is now often being used for essential purchases, not just for discretionary treats. Yet there’s no requirement to do the kind of affordability checks that are expected from lenders before they grant other types of credit.
Research in 2022 found that BNPL users were twice as likely as all credit users to be “safety net borrowers” – that is, to use borrowing to pay a bill, meet a repayment, or make it through to payday. And more recently, StepChange research conducted with YouGov found one in 10 (11%) people, equivalent to over five million, have used BNPL in the last 12 months, rising to one in four among those in receipt of universal credit (24%). BNPL use is now as common as using an overdraft (12%) among all UK adults.