Ticking time bomb: buy now, pay later

More than 3 million UK households owe £2.7 billion in ‘buy now, pay later’ (BNPL) loans, according to a new analysis by Bank of England economists.

The figures, which show that people between the ages of 25 and 34 are most likely to use it, shed light on the extent of the unregulated practice.

And they suggest users are more likely to be financially vulnerable, likely raising concerns about a ticking time bomb for borrowers. Experts warned that some customers were using BNPL without understanding the burden they were taking on.

Labor MP Stella Creasy, who is campaigning for tighter regulation, said: ‘For years we have been warning of the dangers of BNPL lending and the need to act before these legal loan sharks become the next Wonga-style scandal. This data again shows why the government’s refusal to regulate it is inexcusable.”

Two Bank of England economists, Gerry Gunner and James Waddell, analyzed the findings of a survey conducted by the Bank in March 2023. It found that 11 percent of households, or 3.1 million in the UK, said they owed money. are to BNPL.

The average balance was £866 implying £2.7 billion is owed.

Many reported balances of a few hundred pounds or less, but a few reported much larger amounts owed, according to the findings, which were published on the blog ‘Bank Underground’, where Threadneedle Street employees post unofficial research.

The report states that younger people and those renting are more likely to use BNPL – both groups that tend to have less resilient finances. And 68 percent of users are concerned about their loans, compared to 45 percent of other borrowers.

BNPL users are also more likely to be in arrears of two months or more. And 21 percent say they have had payment arrears, compared to 6 percent of other borrowers. BNPL allows borrowers to purchase goods or services and pay them back in installments.

Many of these, often offered by start-up fintech companies, are unregulated, as they do not charge interest on the repayments, but charge retailers a fee. Some of these also charge borrowers for late payments.

Some established lenders also offer BNPL products that charge interest and are regulated. It is often offered as an option alongside online shopping, and is also considered popular with poorer borrowers, as providers are not required to carry out affordability checks.

However, the study found no clear link between use and household income, with those earning £45,000-£54,000 most likely to report use.

And the richest fifth is likely to have a loan balance of £2,000 or more. According to the report, there is little publicly available data on BNPL use, as much of it is unregulated.

Klarna, a major player founded by Sebastian Siemiatkowski, said this week it had 18 million UK customers, although it also offers other payment services.

Activists have sounded the alarm about the growth of BNPL. Rocio Concha, director of policy and advocacy at consumer group Which?, said regulation was needed to protect them.

Because several providers do not provide clear information about the risks associated with using BNPL, such as the potential to go into debt or the consequences of missing payments – including significant payment delays – some consumers enter into contracts without the full picture.’