Buy Now Pay Later is the fastest growing payment method in UK
Specialist Support has seen an increase in queries from debt advisers regarding clients owing to Buy Now Pay Later (BNPL) creditors.
This is a financial commitment that allows you to delay and spread the payments over weeks or months. This activity is unregulated, as the majority of products do not charge customers interest and are therefore beyond the remit of Financial Conduct Authority. The longer term financing option is a regulated credit product as it does attract interest. BNPL providers receive a large portion of their profit by charging retailers a percentage of the value of every purchase.
This quick-fix lending is not a new concept, it’s been around a while. Back in the 1990s, Shop Electric offered the payment plan option for white goods, most catalogues still offer pay-later deals and you can’t miss the new sofa for Christmas TV advertisements every year.
However, more frequently and especially during lockdown, there has been a boom in online purchases, and many online retailers and in-store points of sale are offering BNPL as a payment option. Everything from trendy exercise equipment to even a new car is available with an offer to defer payments.
Compare the Market[1] conducted a survey recently stating 20% of all UK shoppers, more than ten million people, have purchased something with BNPL. Debt advisers are seeing an increase in BNPL creditors such as PayPal Credit, Zilch, Clearpay and Klarna. In particular, Klarna which has seen the largest share in growth with H&M as a major investor and rapper Snoop Dogg as a shareholder, even fronting their eye-catching adverts.
BNPL can be useful in certain circumstances; it allows access to the goods immediately but delays the cost of purchase until after payday - anything from 30 days to 36 months. Customers can conveniently pay via an app or on the website. If used correctly this can strengthen someone’s credit score and only a ‘soft’ credit check is completed. It’s not an application for new credit so it is usually an instant credit decision to accept you as it is only intended to defer payments and not offer finance. There is no affordability check as it’s not a regulated product.
However, there is an increase in clients presenting with issues arising from BNPL products. Advisers say some customers admit they haven’t read the terms and conditions that they have accepted at the time of purchase. Therefore, they do not realise the repayment implications of BNPL contracts. One of the biggest issues we have seen is customers forgetting to pay within the interest-free period, which can accrue late payment fees. Three missed payments can lead to a default notice and this remains on a credit file for six years - lowering the customer’s overall credit score, which could result in difficulty accessing credit in the future.
The Financial Conduct Authority is aware of the growth of this credit facility but has limited powers where a regulated firm is engaged in unregulated activities. From November 2019, the FCA did reform and enforce changes on longer term financing options. BNPL providers must tell consumers clearly when the 0% interest offer expires and prompt the consumer to remind them. They can no longer backdate interest charges on money paid during such an offer period, so this will reduce confusion.
Some campaigners want the government to go further with the BNPL product as they see the marketing on social media as promoting reckless spending with reality TV stars encouraging younger demographics to splash out on impulse purchases. Compare the Market [2]conducted a survey recently which revealed more than 4 in 10 aged between 25-34 had spent more than they otherwise would have by using the scheme and accrued debt.
It is advisable for any customer who thinks they are going to struggle to repay to contact the provider as soon as possible to see what support they can provide. This could be to delay the payment, reschedule or freeze repayments, it is important to note that there is usually a cost associated. If it’s not going to be a short-term issue then the customer can speak to one of our Debt Advice Team.
Specialist Support is available to support all money and debt advisers, managers and supervisors with Linda Wilson taking over the role full time since Phil McGarry retired. The Specialist Support hours are now Tuesday, Wednesday, Thursday 8am-5.30pm and Friday 8am-4.30pm via telephone 028 9064 5919 email to specialist.support@adviceni.net [1] Compare the Market -May 2020 Serious concerns over ‘Buy Now Pay Later’ credit during lockdown - https://www.comparethemarket.com/news-and-views/concerns-over-buy-now-pa...
[2] Ibid
This quick-fix lending is not a new concept, it’s been around a while. Back in the 1990s, Shop Electric offered the payment plan option for white goods, most catalogues still offer pay-later deals and you can’t miss the new sofa for Christmas TV advertisements every year.
However, more frequently and especially during lockdown, there has been a boom in online purchases, and many online retailers and in-store points of sale are offering BNPL as a payment option. Everything from trendy exercise equipment to even a new car is available with an offer to defer payments.
Compare the Market[1] conducted a survey recently stating 20% of all UK shoppers, more than ten million people, have purchased something with BNPL. Debt advisers are seeing an increase in BNPL creditors such as PayPal Credit, Zilch, Clearpay and Klarna. In particular, Klarna which has seen the largest share in growth with H&M as a major investor and rapper Snoop Dogg as a shareholder, even fronting their eye-catching adverts.
BNPL can be useful in certain circumstances; it allows access to the goods immediately but delays the cost of purchase until after payday - anything from 30 days to 36 months. Customers can conveniently pay via an app or on the website. If used correctly this can strengthen someone’s credit score and only a ‘soft’ credit check is completed. It’s not an application for new credit so it is usually an instant credit decision to accept you as it is only intended to defer payments and not offer finance. There is no affordability check as it’s not a regulated product.
However, there is an increase in clients presenting with issues arising from BNPL products. Advisers say some customers admit they haven’t read the terms and conditions that they have accepted at the time of purchase. Therefore, they do not realise the repayment implications of BNPL contracts. One of the biggest issues we have seen is customers forgetting to pay within the interest-free period, which can accrue late payment fees. Three missed payments can lead to a default notice and this remains on a credit file for six years - lowering the customer’s overall credit score, which could result in difficulty accessing credit in the future.
The Financial Conduct Authority is aware of the growth of this credit facility but has limited powers where a regulated firm is engaged in unregulated activities. From November 2019, the FCA did reform and enforce changes on longer term financing options. BNPL providers must tell consumers clearly when the 0% interest offer expires and prompt the consumer to remind them. They can no longer backdate interest charges on money paid during such an offer period, so this will reduce confusion.
Some campaigners want the government to go further with the BNPL product as they see the marketing on social media as promoting reckless spending with reality TV stars encouraging younger demographics to splash out on impulse purchases. Compare the Market [2]conducted a survey recently which revealed more than 4 in 10 aged between 25-34 had spent more than they otherwise would have by using the scheme and accrued debt.
It is advisable for any customer who thinks they are going to struggle to repay to contact the provider as soon as possible to see what support they can provide. This could be to delay the payment, reschedule or freeze repayments, it is important to note that there is usually a cost associated. If it’s not going to be a short-term issue then the customer can speak to one of our Debt Advice Team.
Specialist Support is available to support all money and debt advisers, managers and supervisors with Linda Wilson taking over the role full time since Phil McGarry retired. The Specialist Support hours are now Tuesday, Wednesday, Thursday 8am-5.30pm and Friday 8am-4.30pm via telephone 028 9064 5919 email to specialist.support@adviceni.net [1] Compare the Market -May 2020 Serious concerns over ‘Buy Now Pay Later’ credit during lockdown - https://www.comparethemarket.com/news-and-views/concerns-over-buy-now-pa...
[2] Ibid