UK consumers are ignorant of the true costs of BNPL according to research from the Lending Standards Board. The LSB data underscores the need for more awareness of these products. And highlights the need for proactive outreach from lenders to those who may be struggling financially.
The LSB reports that BNPL use increases around the Christmas, Black Friday, and Cyber Monday shopping period. Inevitably, this leaves many households at risk of struggling with unexpected repayment fees this January.
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Specifically, the LSB reports that only half (52%) of BNPL users are aware of late payment fees. Just 50% know roughly how much these fees might be before they incur them. Some 15% of BNPL users have incurred late fees. This figure rises to 22% for those with ‘poor’ or ‘very poor’ credit scores.
Regulation: consumer knowledge lacking, governments slow to act
The LSB data also reveals that just over a third of BNPL users (36%) say they only decide to use BNPL at the check-out stage. Around three-fifths of BNPL users are unaware that BNPL products are unregulated.
Late last year, the UK Government announced plans to introduce long overdue BNPL regulations. But these will not be in place until 2026 at the earliest.
And to be fair, this is a problem the current government inherited from the previous administration, which dragged its heels on introducing overdue regulation.
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By GlobalDataEmma Lovell, the LSB Chief Executive, says: “There is a place for BNPL products in the financial services sector: users say these products help them feel more in control of their spending, or that they have helped them through financially difficult situations. But there are warning signs flashing that these products aren’t always being used in a properly informed or considered way.”
BNPL attracts users with poor or very poor credit scores
34% of British consumers with ‘poor’ or ‘very poor’ credit scores use BNPL. A further 42% combine BNPL products with credit cards. For all consumers, these figures are just 12% and 33%, respectively. 65% of monthly BNPL users think they will need to access more credit in the next year to cover the rising cost of living, compared to 28% of non-credit users.
Worryingly, over a third (35%) of BNPL users say they often make impulse purchases they later regret. Just 17% of non-BNPL users say the same thing.
US research mirrors UK data
Earlier this week, the Consumer Financial Protection Bureau (CFPB) released data highlighting that more than one-fifth of US buy now pay later (BNPL) borrowers with a credit record used BNPL loans in 2022, with most of those consumers having subprime or deep subprime credit scores.
The CFPB research also revealed that more than three-fifths of BNPL borrowers held multiple simultaneous BNPL loans at some point during the year, and one-third had loans from multiple providers. BNPL borrowers were also more likely than other consumers to have higher balances on other unsecured credit lines such as credit cards.
Emma Lovells adds: “We can see from the data that BNPL users are precisely the kind of consumers that need the most protections and support. The Government’s announcement on BNPL regulation was very welcome. But in the period before regulation comes in, lenders can’t rest on their laurels. More awareness of products and what is required from customers is needed, along with proactive outreach, especially for those experiencing financial difficulty. BNPL lenders should consider working towards best practice frameworks in the absence of statutory regulation to keep pace with the latest trends and ensure the best outcome for their customers.”
