The use of buy now pay later (BNPL) services has experienced a significant surge in the UK, prompting the Financial Conduct Authority (FCA) to raise concerns about the financial difficulties faced by many users of this payment method. According to research conducted by the FCA, approximately 14 million consumers in the UK, accounting for 27% of UK adults, opted for BNPL services in the six months leading up to January 2023, as the cost-of-living crisis intensified. This marks a notable increase from the 17% of UK adults who reported using BNPL in the 12 months leading up to May 2022, as reported by Sky News.
While BNPL has become an increasingly popular option within the fashion sector, with many major retailers partnering with BNPL specialists, the FCA has observed a concerning rise in the number of individuals turning to BNPL options for making purchases, especially among frequent users. This increases their likelihood of encountering financial difficulties. The research revealed that individuals who used BNPL more than ten times in the past year were over twice as likely to also have high-cost credit products, accounting for 48% of users compared to only 22% of non-users. Additionally, BNPL users were almost twice as likely to have accumulated higher levels of debt on credit products over the past year (51% of users versus 27% of non-users). Moreover, 27% of BNPL users had missed payments for bills or credit commitments at least three times in the previous six months, in contrast to just 6% of those who had not used this financing method.
Despite the surge in BNPL usage and the concerns raised by the FCA, the regulatory oversight over BNPL products is currently lacking due to government delays. However, the FCA remains committed to enhancing consumer protection and addressing what it deems as “potentially unfair and unclear contract terms” prevalent in the industry. The FCA has collaborated with BNPL providers and issued guidelines after expressing concerns about the risk of harm faced by customers of payment services such as PayPal and QVC in relation to certain contract terms. Fortunately, both companies voluntarily simplified their continuous payment authority terms, as acknowledged by the FCA. In a review of the unsecured consumer credit market, the FCA recommended that unregulated BNPL products be brought under its regulatory purview. This move would enable the FCA to provide necessary safeguards to consumers and ensure greater transparency in the BNPL sector.
Links:
1. FCA Guidance on Buy Now Pay Later
2. Money Advice Service – Applying for Credit and Your Credit Score
