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Consumers using BNPL are much more likely to be struggling, finds StepChange

Charity urges HM Treasury to proceed swiftly with its plans to regulate the sector

6 January, 2022

Today marks the closing date on HM Treasury’s consultation on how to regulate Buy Now, Pay Later (BNPL) lending. In its response, StepChange Debt Charity points to clear evidence that BNPL products are being widely used by people experiencing financial difficulty. For example, people with two BNPL loans are twice as likely as all adults to say they are finding it difficult to keep up with their household bills and credit repayments.

StepChange urges the Government to proceed at pace with regulating BNPL in much the same way as other consumer credit, to protect consumers more adequately.

StepChange commissioned public polling from YouGov in October 2021 which found that:

  • 10% of GB adults report holding one or more BNPL debt; 30% of those with a BNPL debt have two or more loans and 14% three or more.
  • 87% of those who hold a BNPL debt also have at least one other type of consumer credit product with an outstanding balance.
  • BNPL borrowers tend to be younger, with an average age of 44 compared to 51 among those who hold any credit product.
  • 12% of women hold a BNPL loan compared to 8% of men.
  • 15% of those in a minority ethnic group hold a BNPL loan compared to 10% of those who report a white ethnicity.
  • Half (49%) of those with a BNPL loan say they find it difficult to keep up with household bills and credit repayments (compared to 30% of GB adults), rising to 59% among those with two or more BNPL loans.
  • 32% of those who hold a BNPL loan are receiving one or more means-tested social security payments. (This compares to 18% of those who hold any credit product with an outstanding balance.)
  • 23% of those who hold BNPL are ‘safety net borrowers’; that is, they have recently borrowed to pay bills, make credit repayments or make it through to payday. (This compares to 12% of those who hold any credit product with an outstanding balance.)
  • 17% of those who hold BNPL debt meet StepChange’s definition of severe financial difficulty [see note 2 to editors]. (This compares to 9% of those who hold any credit product and 6% of all GB adults.)
  • 40% of those with a BNPL loan had taken negative coping actions to keep up with credit repayments in the last 12 months, including using credit to repay credit, falling behind on housing payments or utility bills, asking family or friends for help or cutting back to the point of hardship. (This compares to 21% of those who hold any credit product with an outstanding balance.)
  • 39% of those with BNPL debt report that credit had recently had a negative impact on their health, relationships or work. (This compares to 22% of those who hold any credit product with an outstanding balance.)

The size and impact of BNPL in the market is being driven at least to some degree by a ‘race for growth’. Economic commentators have noted that this investment is likely to have been made with a view to acquiring a large customer base and future business models such as operating an e-commerce platform. The value of customer acquisition may have affected the willingness of some firms to knowingly or otherwise engage in practices that are detrimental to consumers, such as relatively relaxed approaches to creditworthiness and affordability assessments.

Phil Andrew, Chief Executive at StepChange, commented:

"Even interest-free credit can and does cause financial difficulty, as we know all too well as a debt charity. BNPL is deliberately marketed and presented – often to less financially experienced consumers - as a means of payment rather than as a form of credit, which is what it really is. It is marketed not just for lifestyle spending, but for essentials such as groceries or school uniform. There is currently very little friction to prevent consumers building up significant amounts of cumulative BNPL debt, so it’s vital that regulation swiftly brings this rapidly growing lending market into line to ensure that consumers are better protected from the risk of financial difficulty."

Notes to Editors

  1. All figures are from YouGov Plc. Total sample size was 5,028 adults. Fieldwork was undertaken between 20th - 24th October 2021. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+). We asked respondents about specific interest-free deferred payment BNPL products to avoid conflation with other forms of BNPL credit.
  2. Respondents were asked if they experienced any of the following in the last 12 months, with three or more constituting StepChange’s definition of “severe financial difficulty”: using credit, loans or an overdraft to make it through to payday; making just the minimum repayments on debts for three or more months; getting hit by late payment or default charges; missing a regular monthly payment on at least one debt; getting hit by overdraft charges on a regular basis; falling behind on essential household bills; using credit to keep up with existing credit commitments; and using credit to pay essential household bills.

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