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Repayment problems mount as BNPL surges

Repayment problems mount as BNPL surges

New research by financial advice service OpenMoney finds almost three fifths (57%) of adults aged 18 to 50 have now used buy now, pay later schemes (BNPL), up from half (49%) last year.

The largest rise in usage has been among 45 to 50-year-olds, where 16% growth in the last year makes it the age group most likely to choose the payment method, with 58% having done so compared to 56% of those aged 18 to 24 - contradicting the belief that it is largely a tool for youngsters.

The survey, among 2,000 UK adults found that the most frequently bought items using BNPL are laptops, phones and other tech items, followed by clothes and holidays.

Two fifths (41%) of respondents said they use it because they can’t afford to pay for an item in one go, double the number who feel it makes financial sense to spread the cost (20%). Among 45 to 50-year-olds, those who use BNPL because they can’t afford an item upfront increased by 20% on last year.

Concerningly, those struggling to pay off their BNPL debts has also risen, from 38% last year to 43% this year and one in three (29%) users have turned to friends and family for help with repayments - an increase of 10% on 2020 figures - while seven percent took out a loan and five percent used a credit card to pay back the money.

Hayley Millhouse, managing director of OpenMoney, comments: “While from a budgeting perspective, spreading the cost of expensive items could make financial sense, it is worrying to see that two-fifths of users struggle to pay off the resulting debt, with many turning to friends and family or other forms of borrowing to make repayments."

The UK's Financial Conduct Authority is to introduce new rules for buy now, pay later firms amid mounting fears of a growing debt burden for cash-strapped shoppers.

Says Millhouse: “Many more people will be using BNPL to finance their Christmas purchases, without necessarily considering how they will make the repayments or fully understanding the consequences if they don’t. One in six of our respondents didn’t even class BNPL as debt. The sooner these schemes are regulated and brought in line with the consumer protections required for other forms of unsecured debt, the better.”

Comments: (10)

Neil Callaghan
Neil Callaghan - Maru Matchbox UK - Southampton 17 December, 2021, 09:57Be the first to give this comment the thumbs up 0 likes

The clamour for regulation even sits with those using BNPL many of whom don't realise it's not yet regulated!

See post here based on some research done last weekend....https://www.linkedin.com/posts/neilccallaghan_buy-now-pay-later-how-does-it-work-activity-6876521365298589696-FDeP

A Finextra member
A Finextra member 17 December, 2021, 11:101 like 1 like

We await class action suits similar to PPP and Payday loans due to lack of clarity and transparency in the sales process

Tom Barr
Tom Barr - WOCU Limited - Chertsey 17 December, 2021, 11:403 likes 3 likes

If you had to design a financial disaster and consequent scandal, you would probably come up with BNPL.

Robin Setty
Robin Setty - ACI Worldwide (EMEA) Limited - Watford 20 December, 2021, 09:271 like 1 like

Wonga 2.0

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 20 December, 2021, 12:131 like 1 like

Oh c'mon, it's not like every consumer has worked out their repayment plan when they say "put it on my card" at the checkout - and that's on credit card with 24-36% APR. Ditto Payday Loans. In contrast, most BNPL is Zero Interest - what's not to like about it?

This BNPL Dunking Campaign reeks of the involvement of banks who haven't understood BNPL and are losing out big time to Affirms & Klarnas who, unlike themselves (banks), are VC funded and can accept losses / miniscule profits for a long time in the pursuit of growth in loan volumes.

A Finextra member
A Finextra member 20 December, 2021, 15:53Be the first to give this comment the thumbs up 0 likes

If it looks to good to be true, it probably is.... at the end of the day BNPL is a loan... the valuations of these loan companies looks a bit inflated to me, and their credit scoring and reporting looks dodgy to say the least.  Not sure how they work in countries where Consumer Debt Burden calculations are a thing.... Good luck to them, but lets not confuse a consumer loan with low barriers to entry, with a ground breaking fintech initiative!

Hans Croon
Hans Croon - Connective Payments - Naarden 21 December, 2021, 11:371 like 1 like

Eppo Heemstra of Connective Payments has just published an insightful article about the hesitant start of regulatory action on BNPL: https://www.connectivepayments.com/buy-now-pay-later-calls-for-regulation/

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 21 December, 2021, 11:54Be the first to give this comment the thumbs up 0 likes

The same merchants who rant against 2-3% MDR for Credit Card are happily forking out 4-6% MDR for BNPL, which is enough for BNPLs to offer Free Credit. It doesn't look too good to be true.   

At the peak of Online P2P Lending mania a few years ago, I remember Disruptionistas raving about alternative credit scoring models based on social media profile etc. and threatening banks with extinction for using their dowdy old FICO credit scoring models.

It tickles me that the the wheel has come full circle, with people now questioning the alternative credit scoring models used by BNPLs.

A Finextra member
A Finextra member 21 December, 2021, 14:181 like 1 like

Where on earth did you get the free credit idea from?  didnt your parents teach you that nothing comes for free?  the cost of this is not being paid for by the VC's, its not being paid for by the Staff and Execs at Klarna, its not being paid for by the people who get into bad debt and commit suicide. - Predominantly the poor/disadvantaged/marginalised/desperate/minority groups (see UK Citizens advice bureau report) ..... its being paid for by the general public who will see costs passed on by the merchant to the consumer...  Not sure exactly where you stand on this, but it seems to be on shaky ground

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 21 December, 2021, 15:10Be the first to give this comment the thumbs up 0 likes

LOL rich of you to stay anonymous and talk about my parents. But I won't hold your upbringing against you.

Merchants incur lower processing cost for debit card compared to credit card, yet I don't know a single merchant who passes on the lower debit interchange by way of discount to consumers paying with debit card. Likewise, they may not pass on the higher cost of BNPL to consumers. 

When I pay fees or interest for other forms of loans, the merchant can still pass on some cost or the other to the general public.

None of this is under your or my control. 

Therefore, as long as I don't pay any explicit fees or interest for BNPL, it's Free Credit. Period. 

ICYMI, merchants pay higher MDR for BNPL because it improves their browser-to-buyer conversion rate and helps them to save on other forms of marketing costs.