'Buy Now Pay Later' purchases take off in the UK

11 November 2021 Consultancy.uk 4 min. read
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With stagnating pay and soaring inflation pushing the majority of citizens toward relying on credit to make ends meet, Buy Now Pay Later vendors are finding the UK to be a fruitful market.

As inflation sees Britain’s residence left with less and less of their paycheque after rent, utilities and food bills, the growth of the UK’s consumption-based economy depends on being able to get customers to part with cash they don’t have. At the same time, despite apparently facing a ‘talent shortage,’ employers remain resistant to giving their staff a pay-rise that could fill this void. A number of entrepreneurs have tries to exploit this ‘gap in the market,’ with different forms of so-called alternative finance.

Pay day lenders, for example, were regularly used as a means for lower-income households to make ends meet and still fulfil the role of consumers. The problem was that many lenders charged extortionate rates of interest for this service, placing huge numbers of people in ever-increasing debt. Following the downfall of firms like Wonga, however, another form of alternative finance has stepped into this position: the phenomenon of Buy Now Pay Later (BNPL).

Merchants reap many benefits from BNPL

Using a BNPL option to spread out payments on a big buy resembles a personal loan in that your payments are split up into equal instalments over time, typically just a few months. Such deals have exploded during the pandemic, gaining a foothold among the under-30s and those with tight finances, who have welcomed the ability to delay payment for goods, typically without interest.

It is easy to see why merchants are increasingly signing up to allow BNPL providers on their vending sites. A poll from Bain & Company found that the nature of buying now, paying later meant many people felt able to purchase items they would otherwise have saved for. As a result, 57% of merchants questioned already said they had benefitted from increased checkout or basket conversion on their website, due to BNPL. A further 47% said the order value had been boosted – while more than half felt their brand had accessed new customers due to BNPL involvement.

But while customers are able to access goods they might not have afforded, and merchants make quicker sales conversions, not everyone is positive about the advent of BNPL. It has also stoked fears that the unregulated financial product is encouraging unsustainable spending and reliance on debt. According to the same study from Bain, only 21% of consumers said they “strongly agree” they can easily afford BNPL payments. While supporters of BNPL providers might say a further 48% said they “somewhat agree” with that, it hardly seems like a ringing endorsement, considering the levels of debt they could find themselves in while their incomes are thin enough to have to depend on alternative finance in the first place.

Most consumers use buy now, pay later to make products more affordable

BNPL loans are typically interest free, as long as the user promptly makes full payments of the agreed instalments. The issue with this is that only some BNPL operators use affordability checks, while terms and conditions are not always thoroughly spelled out to online shoppers using one-click-buy buttons. This is something spelled out in alarming clarity by Bain’s survey, in which 58% of BNPL users aged 18–24 and 49% of those aged 25–34 agreed with the statement, “BNPL services… do not qualify as debt because they don’t charge interest.”

Meanwhile, regulators have been slow to respond to the phenomenon – meaning consumers may not be adequately protected from predatory behaviour at present. The UK’s Citizens Advice recently commented that this made BNPL borrowing “like quicksand – easy to slip into and very difficult to get out of.” Treasury proposals currently include introducing rules governing how BNPL firms treat customers in financial difficulty. Also, proportionate regulation should include the ability for consumers unhappy about the way a BNPL firm has treated them to complain to the Financial Ombudsman Service. According to the Guardian, though, it could be late 2022 or 2023 before any such regulations take effect.

Standing by BNPL, Jeff Tijssen, Partner at Bain & Company and leader of the firm's global fintech business, asserted, "BNPL benefits both consumers and merchants and has a clear role to play in the UK financial services market… Increased regulation will help protect consumers by creating standards for BNPL providers to follow. Yet just as important is the willingness of BNPL companies to actively put customers' welfare and priorities front and centre. Companies will thrive by combining the conveniences of new digital experiences with active measures to promote healthy financial management and debt repayment."