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Two million Britons are using buy-now-pay-later for essentials

Two million Britons are using buy-now-pay-later for essentials
A shopper walks down the clothing aisle inside a J Sainsbury Plc supermarket in London, UK, on Tuesday, 5 July 2022.

Almost two million people in Britain are using buy-now-pay-later credit to cover groceries, bills and other necessities, according to the Money and Pensions Service. 

While electronics and clothes are the most common purchases with short-term debt, one in five people who use BNPL paid for essentials, according to a survey carried out for the consumer body in March. Half of all users surveyed said cost-of-living pressures had changed how they used BNPL. 

About one in three users had at least two outstanding bills, while around 30% owed more than £100, the poll of about 2,000 people showed. Altogether, more than 10 million people are using BNPL, the organisation estimated.

“Buy now pay later products are useful for many people to smooth their spending, but customers can be supported to better manage their repayments,” said Ellie Lugt, senior adviser at the Behavioural Insights Team, which conducted the research. 

The study offers a glimpse at how inflation continues to squeeze many British households’ budgets. In March 2022, Citizens Advice found one in 12 people were turning to BNPL to cover basic costs like food and toiletries.

Meanwhile, BNPL products have expanded rapidly, with platforms such as Klarna Bank AB, Paypal Holdings and Zilch offering online shoppers the option to split purchases into several payments. Customers typically don’t pay a fee if they repay on time, with providers instead charging merchants for partnerships. 

“This research shows that many people are using it when they hadn’t intended to and spending more because it was available,” said Jackie Spencer, head of money and pensions policy at the Money and Pensions Service.  “It’s absolutely crucial that they make sure they can afford the repayments and don’t risk turning a short term product into long term debt.” 

Regulation of the sector in the UK seems to have stalled, with no update since a long-awaited Treasury paper in February proposing to give the Financial Conduct Authority oversight powers.

Still, providers are changing their operating models in response to regulation elsewhere, a tougher funding environment and plunging fintech valuations since a peak in 2021. Australia’s Zip exited the UK last year after major losses, and announced in March it was rolling back operations in its other global markets. Clearpay closed in Europe this summer, citing tough trading conditions. Klarna and Zilch are diversifying into areas such as advertising and artificial intelligence. DM

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