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Buy Now Pay Later (BNPL) schemes offer shoppers the opportunity to purchase products without the need to pay the full amount up front. With a promise of flexible payment options and access to interest-free credit, UK shoppers are turning to these services as the cost of living crisis hits people’s cashflow.
Overall, 70% of BNPL users are paying through these means more often as a direct result of the cost of living crisis*.
Forbes Advisor surveyed 2,000 British adults about their usage of BNPL services to explore the booming market across the financial services and retail sector.
Findings unveiled not only the rise in popularity, but also the risks associated with this payment method.
*Users of BNPL schemes were asked the following: Has the cost of living crisis impacted your use of BNPL services?
As the cost of living tightens, consumers are turning to BNPL
As the cost of living crisis picks up pace, Brits have become increasingly reliant on BNPL as a payment method. Our survey discovered that more than two thirds (70%) of BNPL shoppers have turned to these services more frequently in the last six months.
Generation Z are using BNPL services most frequently
Across generations, certain age groups are more drawn to BNPL than others. While there has been a significant shift in spending across all ages, it is young people who are using these the most.
Our study found that consumers aged 18-24 have been the most reliant on BNPL services, with four in five users (80%) upping their spend. Users aged 25-34 have increased spending through these services the second most, with three quarters using them more regularly.
While the overall momentum of BNPL popularity is significant, the fact that it is young people who have increased their usage is expected. BNPL companies have largely focused on targeting young people, advertising the use of such payment methods when shopping for fashion and lifestyle products.
Research into BNPL marketing methods highlights this. Over three quarters of users (76%) have come across advertising on social media platforms. Furthermore, almost half (49%) of users aged 18-24 claim to have been targeted through paid social media adverts.
The appeal that young people can access immediate credit with minimal checks and little credit history has played a big role in the rise of BNPL platforms. Further research into reasons for making purchases using these schemes supports this.
The most common reason for BNPL is the ability to break up the cost of purchases into manageable amounts
Top 5 reasons people are using BNPL services
The flexibility of BNPL payments means consumers can break up the cost of their purchases, allowing them to buy the product that would otherwise have been beyond their reach.
Furthermore, BNPL means customers can avoid interest charges and fees if they make the required payments in full and on time. With interest rates particularly high at the moment, it is easy to see the appeal.
While such positives are a huge benefit, it is important that consumers keep on top of their payments. Over a quarter of users (25%) did not claim to know how much money was going out of their account monthly, as a result of paying off their loans. In the long run, late or missed payments can attract a fee and result in a mark of the individual’s credit file.
Concerningly, findings also unveiled that almost one third of those surveyed are using BNPL to make purchases outside of their budget. To avoid accumulating debt down the line, consumers should make a plan of how they are going to pay off their spend.
Furthermore, more than one quarter of users are using BNPL as an alternative to credit cards after having a card application refused. With many people rejected for credit cards due to their poor credit history, these schemes could be risking the most vulnerable building up more debt.
However, as of June 2022, BNPL providers have strengthened their affordability checks, after investigations by the financial regulator and the government. While this is welcome news, companies are still only making light-touch credit checks, and do not have tight restrictions on access.
Generation Z are using BNPL services to keep up with fashion trends
Our study found that almost two in five (39%) Gen Z users (those aged 18-24) are using BNPL so that they can afford to keep up with fashion trends. The second most common usage among this age group is that it is their main purchasing option when cash is a struggle (38%). Alongside this, 38% claim that they like the ability to break up the cost of purchases into manageable payments (38%).
Those aged 35-44 have interest charges front-of-mind: two in five favour the payment method due to the 0% borrowing rate.
Concerningly, almost one third (29%) of those aged 35-44 are using BNPL service to cover cash struggles, with one quarter aged 25-34 (24%) doing so too. There are fears that such behaviour could lead to individuals slipping into unmanageable debt.
Shoppers are using BNPL schemes 3.6 times monthly, but what are they buying?
On average, British BNPL shoppers are using these schemes 3.6 times monthly. However, this differs among age groups. As with other trends identified in our study, it is people aged 18-24 who are found to be using BNPL services the most frequently.
Luxuries are becoming more accessible to consumers
Electronics are the most common spend, with almost one third of BNPL shoppers buying items such as computers, phones and TVs.
Almost one quarter are purchasing luxury items such as designer clothing, jewellery and handbags, further emphasising how BNPL schemes are making expensive luxuries seem more affordable. Additionally, high street fashion, beauty and lifestyle brands are clearly keen to partner with BNPL providers to boost their sales.
This again highlights the marketing success and audience targeting of companies such as Klarna and Clearpay. Partnerships with both high street and luxury brands are advertised heavily on their websites, as well as on advert banners, social media pages and check-outs of their partner’s websites.
Additionally, as the popularity of BNPL increases, more brands are seeing the benefits. Most recently, Deliveroo partnered with Klarna. Our study shows that more than one in six have used “eat now pay later” schemes already.
Between Deliveroo increasingly adding more supermarkets to their roster and the cost of living climbing, our study indicates that people could start turning to BNPL for their everyday essentials more often.
Buy Now, Debt Later
While there are clear benefits to the BNPL market, research suggests that BNPL is not the best choice for consumers who are spending beyond their means. Ultimately, there is a point where “pay later” is not so straightforward.
Two in five BNPL users aged 18-24 missing payments monthly
Findings suggest that almost one quarter of consumers are missing monthly payments (24%) and more than one quarter are skipping payments at least every few months (27%). The reality is that over half are falling into debt through these schemes.
More often than not, people are failing to pay back their debt within a couple months of their purchases, with young people struggling to keep up with their repayments the most.
It is important that consumers realise the implications of making late payments and missing payments altogether. BNPL schemes highlight that late payments do not impact a user’s credit score. However, details such as late payments and unpaid transactions are visible on users’ credit files. This can adversely affect people when looking to borrow money for mortgages, loans and credit cards down the line.
BNPL users are falling into an additional £160 worth of debt monthly as a result of BNPL schemes
BNPL City hotspots
As a whole, consumers in Oxford are spending the most money on Buy Now Pay Later services, with £361.77 spent monthly, followed by Coventry at £293.29.Aberdeen and Sheffield are the only cities in the more northern parts of Britain on the list of the 10 biggest spenders by city. A number of cities on the list, such as Oxford, Cambridge, London and Brighton, are among the most expensive places to live in the UK.
Laura Howard, our money expert, highlights the potential dangers of BNPL, especially for those who are already stretched financially and who, because of their age, do not have a great deal of financial experience: “The attraction of BNPL is obvious – it brings products within reach for people who cannot afford the ticket price up front and who perhaps do not have access to other forms of credit.
“But the lure of being able to buy something immediately should not tempt people into a financial arrangement that they cannot manage or afford. If you’re late with your payments there’s the prospect of fees, and you could end up staining your credit file, making it harder to secure financial products at a later date.
“The government and financial regulator have already already criticised some BNPL marketing activity as irresponsible, and we can expect tougher regulation of the market in 2023.
“Using credit services such as credit cards and personal loans means meeting repayment schedules or facing penalties that can be costly and far-reaching. People need to keep this in mind when deciding whether to use a BNPL scheme or, indeed, any other credit product.”
