Spike in Usage of Buy Now Pay Later Services, FCA Reports

The Financial Conduct Authority (FCA) has reported a “significant increase” in the use of Buy Now Pay Later (BNPL) options for purchases. Roughly 27% of UK adults, or 14 million people, have utilized BNPL in the six months leading to January 2023. This is a considerable increase from the 17% reported in the year leading to May 2022.

BNPL allows customers to buy goods on credit, with repayment made in interest-free instalments. Major providers of this service include PayPal and Klarna.

Financial Difficulty Among Frequent Users

FCA research indicates a correlation between frequent BNPL usage and financial difficulty. Those who used the service more than 10 times in the past year were more than twice as likely to have a high-cost credit product, compared to those who did not use BNPL.

BNPL users were also nearly twice as likely to have increased their debt on credit products over the last year. Furthermore, 27% of BNPL users had missed a payment of a bill or credit commitment in three of the last six months, a percentage significantly higher than the 6% among non-users.

FCA Pushes for More Consumer Protection

Despite the lack of regulatory oversight over BNPL products, the FCA is advocating for more consumer protection against “potentially unfair and unclear contract terms” in the sector. The FCA has been working with BNPL providers and issued guidance after expressing concern that customers of PayPal and QVC could be “at risk of harm” due to the way some contract terms were drafted.

In response, both companies voluntarily made their continuous payment authority terms easier to understand.

BNPL: A Double-Edged Sword?

While BNPL can be a helpful tool for managing budgets, it can also lead to financial trouble for some users. Sarah Coles, head of personal finance at Hargreaves Lansdown, warns that overreliance on BNPL can lead to unnecessary purchases and unaffordable debts.

A review of the unsecured consumer credit market by the FCA has recommended that unregulated BNPL products be included in the FCA’s regulatory sphere.