Nearly a quarter of buy now pay later (BNPL) users in the UK have missed payments in the last six months as regulation of the loan product remains limited.
Research from the charity the Centre for Financial Capability found that 22% of UK BNPL users had missed one or more payments, with many incurring late payment fees.
BNPL is a payment option provided by firms like Klarna, Zilch and Clearpay that splits the cost of a purchase into regular instalments.
The ability to reduce purchases into smaller, more manageable fees became particularly popular as the cost of living in the UK increased, creating an industry projected by research firm GlobalData to be worth $1tn by 2030.
Financial education charities and consumer protection groups, however, have warned that the recent popularity of the service – particularly among the young – is putting people at risk of unforeseen debt.
BNPL is essentially a loan, which is expected to be paid in full in a series of instalments. The issue flagged by charities and financial regulators is that the service is not treated as a loan, meaning consumers are left without the same protections and understanding of the risks.
A survey in November 2022 conducted by Creditspring found that nearly a third of people aged 18-34 were not aware that BNPL can put you in debt.
“As the ongoing cost of living crisis continues to impact the British public, it is apparent that many users are increasingly reliant on these schemes, without fully understanding the risks involved,” said Jane Goodland of the Centre for Financial Capability.
The Financial Conduct Authority (FCA) has taken steps to increase protections and implemented a requirement last October for firms to more clearly inform users of the risks.
The government drafted a stricter regulatory policy for BNPL in February 2023 but is yet to enforce it.