Buy Now, Pay Later: failing to numb the pain
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Article Type
Sustainability Soapbox
Topic
Responsible Investing
Published
June 19, 2024
Read time
3 mins
Author
Robin Honeyman
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The Christmas holidays seem like a distant memory, and the hangovers have finally worn off. At least the physical ones anyway, but for some, the financial hangover lingers on.

 

In 2022 we wrote about the almost predatory nature of buy now, pay later (BNPL) services and the evidence of financial hardship they could cause. We concluded then that BNPL lenders would need to up their game on consumer protection to get ahead of regulatory oversight. However, two years on and not much has changed.

 

In the US, BNPL contributed to US$16.6 billion in online spending during November and December 2023, a 14% increase on the previous year. Around 9% of all US adults who made holiday purchases said they used BNPL at least once (versus 50% using credit cards), according to a CivicScience survey.

 

How much do you currently owe in debt from using online buy now, pay later services (such as Affirm or Klarna)?

How much do you currently owe in debt from using online buy now, pay later services (such as Affirm or Klarna)?

 

Source: CivicScience 2024.296 - 418 responses from 01/22/2024 to 01/25/2024. Rebased among BNPL users. Perecentages do not sum to 100 due to rounding. Weighted by U.S. Adults 18+

 

The same CivicScience survey found that of those who had used BNPL for holiday purchases, 44% thought they would acquire more debt six months after the 2023 holiday season, versus just 20% of those not using BNPL.

 

According to a 2023 Consumer Financial Protection Bureau (CFPB) report, BNPL users had almost $12,000 less in non-retirement savings compared to non-BNPL users and around $4,000 less available on credit cards. And BNPL users are twice as likely to be delinquent on other loans.

 

This is concerning given respondents to a UK survey indicated an increasing reliance on BNPL for essential items such as groceries - 19% of respondents had used BNPL on essentials, and 31% said they would do so in the future.

 

In the UK, the Government had previously promised to introduce legislation to regulate the BNPL market. As of February 2024 , three years after the Woolard Review1 this appears to have stalled at the consultation stage. The EU has recently updated the Consumer Credit Directive to bring BNPL under its umbrella. In the US , a patchwork of federal and state regulators have oversight of different parts of the BNPL landscape, but the CFPB has stated that it is a priority to ensure lenders are subject to the appropriate level of supervision.

 

Buy Now, Pay Later is here to stay. It has seen strong growth in both number of users and value of payments made. BNPL lenders would argue that their services provide access to finance for those who would otherwise go without. However, since our last soapbox, they have made little headway on addressing consumer protection. It is clear now that regulation is needed more than ever to ensure the correct level of intentional oversight is required to ensure user welfare is not harmed.

 

1 An in-depth examination of the UKs unsecured credit market, providing recommendations for regulation and addressing innovations in lending practices.

Disclosures

Author

Robin Honeyman
Responsible Investment Associate
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