One in 12 Relying on BNPL for Essentials

17

March 2022
One in 12 Relying on BNPL for Essentials (1)

One in 12 Relying on BNPL for Essentials

Over the last six months, as the cost of living has risen, one in 12 people have turned to buy now pay later (BNPL) plans to cover essentials such as groceries and toiletries, Citizens Advice has found.

BNPL arrangements have exploded in popularity in the UK since the pandemic, with millions entering agreements with providers such as Klarna and Clearpay at online checkouts. Consultancy Bain & Company has estimated that the largely unregulated market is worth £6.4 billion annually in the UK, with 10 million shoppers taking out financing. 

But while the financing is thought of as a convenient way to split or delay payments for items like electronics and clothing, the sectors targeted by industry leader Klarna, campaigners have raised concerns about providers offering payment plans for food shops. 

A January investigation by the Observer found that one tech firm is offering payment plans for shops at a range of popular high-street supermarkets, with consumers able to buy ready meals and pet food on six-week repayment plans. Meanwhile, an entire online BNPL grocery shop has launched in the UK, offering struggling families credit for grocery products, no credit checks required.

Now Citizens Advice reveals how many of us are using these repayment plans to make ends meet. 

While around 8% of all consumers have turned to BNPL to cover basic costs, some groups rely more heavily on the financing arrangements. Young people, those in debt, and people claiming Universal Credit are at least twice as likely to have used BNPL for essentials, a survey commissioned by the consumer champion found.

The survey confirms troubling anecdotal reports from the charity’s frontline advisors, including someone in debt using BNPL for their weekly food shop and a parent using BNPL to buy baby clothes while waiting for a benefit payment. 

“The fact that people are turning to Buy Now Pay Later for their groceries really hammers home the urgent need for industry regulation,” said Dame Clare Moriarty, Chief Executive of Citizens Advice.

“As living costs spiral, we fear more people in desperate situations will see this unregulated form of credit as the answer. The Government must keep pace with these firms and ensure consumers are protected."

The Treasury began consulting on proposed regulations for the sector in the autumn. Under the proposed rules, which will bring BNPL plans more in line with other forms of consumer credit like credit cards and loans, providers will be required to conduct creditworthiness assessments of customers before offering them repayment plans. They'll also need to treat borrowers in arrears fairly and consistently. However, the Treasury hasn’t yet announced when the regulations will come into force.

Meanwhile, all three of the UK’s main credit reference agencies have announced they will routinely include BNPL financing agreements on credit files for the first time from later this year.

Sources