More than a third of consumers say buy now, pay later (BNPL) has become more appealing in the cost-of-living crisis as one in three users report such schemes have left them with unmanageable debt.
BNPL users are now paying off 4.8 purchases on average – up from 2.6 in February – with the average amount owed standing at more than £250, according to research by Barclays and debt charity StepChange.
The rising cost of living is having a direct impact on the popularity of BNPL purchases, with 36% of consumers saying the lending – much of which is still unregulated – has become more appealing since inflation began to climb.
Retailers that offer BNPL credit estimate that the lending will account for nearly a quarter (22.1%) of sales by the end of 2022, rising from the current 18.7%.
Some 86% of retailers report a surge in demand for BNPL purchases since the start of the year.
However, 31% of Britons who have already used BNPL to purchase goods say the lending has got them into problem debt as repayments became unmanageable.
The bank and charity said retailer backing for fully regulated BNPL products could prevent up to 876,000 Britons from getting into unmanageable debt this year.
Around 7% of shoppers plan to use BNPL for the first time this year, and 75% of these said their decision would be influenced by the retailer at the point of purchase.
However the study found that more than half of retailers (54%) wrongly thought that most BNPL companies performed a full credit check before deciding to lend money to a consumer, and 52% mistakenly believed that all BNPL brands reported their lending to the UK credit reference agencies.
In addition, 39% incorrectly assumed that unregulated BNPL providers were required to follow the same rules as traditional banks and credit card companies when it came to lending responsibly.
The Government announced earlier this week that it will publish a consultation on draft legislation to regulate BNPL towards the end of this year.
Barclays and StepChange are calling on retailers to make sure they fully understand the BNPL products they are currently offering and that they assess whether the products are right for their customers in the long run.
Antony Stephen, chief executive of Barclays Partner Finance, said: “Retailers are a vital gatekeeper in the lending process and it is crucial that they perform due diligence on the BNPL products they offer.
“However tempting it may be to evaluate BNPL payments purely on their acceptance rates or merchant fees, they need to go further and look at how responsible the lending process is behind each transaction.”
Richard Lane, director of external affairs at StepChange, said: “There is rising evidence that buy now, pay later isn’t just being used to buy discretionary items, like fashion, but also life’s essentials, like groceries.
“Just because it is short term and interest-free doesn’t mean it isn’t a contributor to problem debt. Especially at the moment, with the cost of living biting, there is a high risk that people who may be struggling will turn to all available forms of borrowing to try to make ends meet.
“It’s therefore particularly important that adequate protections are in place to reduce the risk of borrowing turning into problem debt.”
A Clearpay spokeswoman said: “Globally, 90% of Clearpay transactions are made with a debit card and 95% of instalments are paid on time, demonstrating that our customers use Clearpay to manage their spending and avoid the risk of revolving debt that comes with credit cards.
“Clearpay has always been supportive of fit for purpose regulation that will set high industry standards across the board to safeguard all consumers using BNPL, deliver innovation in consumer credit, and help move the UK away from a reliance on revolving debt.”
Alex Marsh, head of Klarna UK, said: “The conclusions in this report from Barclays are hugely patronising to UK retailers, who already choose their credit providers based on responsible lending practices and quality of service.
“With consumers rating Klarna ‘Excellent’ on Trustpilot (4.4 stars out of five from over 150,000 reviews), compared to Barclays, which scrapes just 1.5 stars out of five, it’s unsurprising that UK retailers, like their customers, are ditching the old banks.”
– Opinium surveyed 2,000 UK consumers and 400 retailers between May 13 and 20.