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Many BNPL users unclear what they're signing up to - survey

Many BNPL users unclear what they're signing up to - survey

With millions of Brits set to use buy now, pay later options for their Christmas shopping, new research from Barclays suggests that many do not fully understand how the products work.

In a survey of 2000 Brits by Opinium for Barclays, more than a quarter say they have used BNPL. OF these, 46% say they are likely to use the option again to spread the cost of their Christmas shopping.

However, the data shows that shoppers’ knowledge of BNPL products is patchy, with two in five admitting they lack a full understanding of how the products work. And with 35% admitting they’re more likely to use BNPL as the cost of everyday living increases, Barclays claims that a growing indebtedness bubble could be on the horizon unless steps are taken to fully regulate lending at the point of sale.

Over a third admit to using BNPL to buy more than they are able to afford and a quarter report struggling to keep track of their spending having taken out loans with several BNPL providers. One in four say this has caused them to miss a repayment.

Barclays, which is one of the country's biggest credit card providers, stresses the risks associated with the lack of regulation for BNPL products, something which the FCA is in the process of addressing.

Antony Stephen, CEO, Barclays Partner Finance, says: “This research shows that more must be done to educate consumers using unregulated ‘buy now pay later’ products. Too many people are taking out these loans without realising the impact it could have on their finances and with festive shopping in full swing, it’s important shoppers don’t run risk of signing up to agreements, which they may struggle to repay affordably in future.

“To protect consumers against taking on more debt than they can comfortably afford to repay, and to ensure minimum standards exist across the sector, we believe regulation should ensure all BNPL providers are required to undertake appropriate affordability assessments, consistent with those in place for other regulated consumer credit products.”

Comments: (7)

Giles Sergant
Giles Sergant - Consultant - Newcastle Upon Tyne 03 December, 2021, 09:511 like 1 like Subprime 2.0, The Sequel
Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 06 December, 2021, 13:25Be the first to give this comment the thumbs up 0 likes

LOL as though customers fully understand credit card, mortgage, overdraft, ULIP and other garden-variety financial products.

(I'll not even talk about MBS, CDO, CDS and other structured financial products that can only be bought by accredited investors.)

A Finextra member
A Finextra member 06 December, 2021, 15:551 like 1 like

From personal experience I can also say that it not clear who the people are proving the BNPL credit.  I used a BNPL 0% option to pay for an appliance bought online.  No problem there until I checked my credit report some time later and saw they included a credit card from a supplier I didn't recognise.  Suspecting a fraudulent application I raised a report with the credit agency (which gave a very slow response as an aside), but eventually, after several to and fro's with the agency, I realised it was the BNPL.  It remains on my report as an active credit card despite no card ever having been received and the facility was only used once over 2 years ago.  These should be clearly differentiated from other types of product and should be shown as inactive once the credit has been paid off.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 07 December, 2021, 13:21Be the first to give this comment the thumbs up 0 likes

TY @AFinextraMember.

Banks offer to convert largish charges to installments. I also know a couple of nonbank BNPLs (Slice, Uni), who offer credit card-based BNPL services. I never suspected that other BNPL providers also effectively operated over an underlying credit card and snuck in a credit card without the explicit consent of BNPL customers. 

This should be a major PSA for BNPL users.

A Finextra member
A Finextra member 07 December, 2021, 14:31Be the first to give this comment the thumbs up 0 likes

The BNPL offer from my credit card issuer, a Top 5 UK Bank, has processing fees and interest, like any other credit product. When the Klarnas and Affirms and AfterPays offer free credit, I don't know how this bank will persuade its customers to incur the costs of processing fees and interest.

Looks like banks entering BNPL are equally unclear about what they're getting into:)

In short, seller and buyer are both unclear about what they're signing up for. Sounds like a match made in Heaven. What can go wrong, huh?

Giles Sergant
Giles Sergant - Consultant - Newcastle Upon Tyne 07 December, 2021, 15:171 like 1 like

Banks, cc companies (and any fintech that’s able to pivot) is rushing to the UK BNPL market because big positions are being taken in this niche corner of consumer payments, which is pre-regulation.  It's hot.

Some trying to incept in this space (hoping to morph to something more profitable) others just covering positions, heat seeking or simply just the plain fear of missing out.

Merchants just want to shift more gear and will engage with pretty much anything that might lower or equate to their current merchant service charges.

But it’s a perfect storm for UK consumers, easily enticed by the accessibility of instant credit and allured by the “have what you want when you want” messaging which underpins it. 

And okay BNPLs may not yet be making money and may not yet vbe taking extortionate fees, but it is driving gross consumer credit upwards (household debt) and when disposal income is flat and the friction to get credit lowers the pain spreads elsewhere. 10% of BNPL customers are already in arrears and 54% of BNPL payments in the UK are being made on credit cards.

Worse of all, the traditional unsecured consumer credit market, such as hire purchase agreements, credit card limits and even payday loans, is regulated to ensure affordability checks are made and repayment capability assessed.  There’s no such overarching checks with BNPL, no tethering, no repayment dashboard.  Consumer can get hitched with as many BNPLS as they like: with the consumer left with the responsibility to assess their own gearing to repayment metric. 

We know how this ends. Did someone just say Wonga?!

When they said Open banking would pave the wave for killer apps, I doubt this is what they had in mind.


A Finextra member
A Finextra member 08 December, 2021, 22:53Be the first to give this comment the thumbs up 0 likes

Great analysis of the situation Giles.  There is no free lunch.   No matter how you slice it, there is a cost of capital, and someone has to pick up the check!