Barclays, one of the leading banks in the UK, is advocating for stricter regulations in the ‘buy now, pay later’ (BNPL) market. At present, this industry is not subject to the same rigorous regulations as the broader consumer credit sector. However, Barclays believes that it is imperative to establish a consistent and effective regulatory framework in order to safeguard consumers against accruing unmanageable debt.
The popularity of BNPL has experienced a significant surge, particularly in the fashion and luxury sectors, as it provides customers with a convenient method to distribute their payments over several months, all without incurring any interest charges. Nonetheless, concerns have arisen regarding the ease with which individuals can attain BNPL financing, potentially resulting in the accumulation of overwhelming debt.
Recent research conducted by Barclays Partner Finance has uncovered that approximately one-quarter of BNPL users are apprehensive about their ability to repay their bills. Furthermore, over one-third of these individuals resorted to BNPL due to insufficient funds in their current or savings accounts, and 10% chose this option because their credit card applications were rejected.
Young BNPL users, aged between 18 and 34, have been particularly impacted by these concerns. Nearly one-fifth of them have encountered negative effects on their credit scores owing to missed payments. On average, BNPL users are currently repaying £293 in loans, and almost half of them have loans from multiple providers concurrently. In order to meet their repayment obligations, 23% of young BNPL users have had to reduce their spending on essential items like groceries.
Barclays argues that consumers are entering into unregulated agreements when they are not in a financially stable position to do so. When lending is regulated, comprehensive affordability assessments are conducted to evaluate a customer’s personal financial circumstances before approving a loan. This practice ensures that customers borrow only what they can comfortably repay.
Interestingly, Barclays itself offers BNPL options to its customers. In fact, the bank recently extended its partnership with Amazon, enabling customers to pay for purchases of £100 or more in installments on the e-commerce platform. However, Barclays treats all such lending as regulated, even if the product falls within the definition of unregulated BNPL. This approach is rooted in the belief that prioritizing consumer interests is of utmost importance.
Given that the UK government is presently deliberating on how to regulate the BNPL industry, Barclays’ call for stronger regulations is timely. By implementing a robust regulatory framework, consumers can be better protected from accruing unmanageable debt. It is crucial for the industry to prioritize affordability assessments and ensure that customers possess the financial stability to repay their loans. Only through responsible lending practices can the potential pitfalls of BNPL be mitigated, permitting consumers to make informed financial decisions and avoid falling into a cycle of debt.
Useful links:
1. Barclays Official Website
2. UK Financial Conduct Authority – Buy Now, Pay Later Information
