Which? is calling for stronger safeguards to stop online shoppers
from choosing Buy Now Pay Later to pay for products without
knowing the risks, as new research from the consumer champion
reveals many people do not think that they are taking on debt
when using this payment method.
Buy Now Pay Later (BNPL) has soared in popularity in recent years
as a way for consumers to pay for goods and services, with the
biggest provider Klarna now boasting 13 million customers in the
UK.
But Which?’s research, carrying out in-depth interviews with 30
typical BNPL users, has raised concerns that shoppers do not
fully understand the risks of choosing a 'pay later' option at
the checkout.
Many of the BNPL users interviewed by Which? did not think of
BNPL schemes as a form of credit, meaning they could unwittingly
be exposing themselves to serious risks of missing repayments,
such as late fees, marked credit reports or referral to a debt
collector.
Instead, participants described the schemes as a ‘way to pay’ or
a ‘money management tool’, rather than a credit provider. One
user said: “It allows payments to be spread out for budgeting. It
made things possible which in one go would have been extremely
difficult and I would have probably had to borrow money from
elsewhere.”
Though BNPL schemes are a form of credit, they work differently
to more traditional methods of borrowing such as credit cards.
Not all BNPL schemes run hard credit checks, for example, and
users can normally sign up to a BNPL scheme in a matter of
clicks.
Which? research found it was precisely this speed and simplicity
when selecting BNPL at the checkout that contributed to users’
misunderstanding. Another user said: “It seems really convenient
and no hassle. It just asks a few questions so it doesn’t feel
like you’re committing to a credit agreement.”
The research also revealed low engagement with BNPL providers’
terms and conditions. Most BNPL users said they either skimmed
the T&Cs or simply ticked a box to say they had read them in
full.
As a result, some users had a limited understanding of the
consequences of missing payments, and the safeguards and checks
carried out by BNPL providers. Some participants were not aware
there were late payment fees at all.
Throughout the research, Which? also found that BNPL users do not
consider the prospect they might struggle to make repayments. In
fact, using BNPL schemes made some consumers feel less concerned
about making purchases they would not otherwise view as necessary
or affordable. “It softens the blow psychologically. It almost
doesn’t feel like I’m blowing £100 on shoes,” said one
participant.
Concerningly, many of the participants wrongly assumed the
schemes were regulated. “I am surprised, I am shocked, they
should be regulated. If you have a service that is not regulated
you have no protection for consumers,” one participant said.
This lack of understanding around BNPL products is particularly
concerning given previous Which? research that found people are
more likely to be using BNPL at stressful and challenging times
in their lives.
Missing a credit repayment or bill or experiencing a major life
event – such as getting married, having a baby, moving home or
being made redundant – increases the odds of using BNPL by around
a third (38% and 35%, respectively).
That is why Which? is calling for stronger safeguards to protect
consumers, including steps in the checkout process to ensure
people understand they are borrowing money when using BNPL, and
warnings about the risks of using the schemes.
Key information, such as payment terms, late fees and the
potential consequences of missed payments, should be communicated
at the point of transaction to help consumers make informed
choices. Given the immediate risk, BNPL providers should
proactively make their key terms and conditions more accessible,
rather than waiting for regulation.
Affordability assessment should also be carried out for all BNPL
transactions ahead of regulation being introduced.
As the government’s consultation into regulation of the BNPL
market closes, the consumer champion wants no delay in regulating
these schemes to ensure that those who use it are properly
informed and protected.
Rocio Concha, Which? Director of Policy and Advocacy,
said:
“Buy Now, Pay Later (BNPL) schemes can offer speed and
convenience at the checkout, but our research shows that many
users do not realise they are taking on debt or consider the
prospect of missing payments.
“That is why there must be stronger safeguards to protect
consumers and warn about the risks of using the schemes. Payment
terms, late fees and the potential consequences of missed
payments should be communicated at the point of transaction.
“There must also be no further delay to plans for BNPL
regulation, which should include much greater marketing
transparency, information about the risks of missed payments and
credit checks before consumers are cleared to use BNPL
providers.”
Notes to editors
Research
Which? conducted in-depth interviews with 30 consumers who had
used BNPL products in the last 12 months. Participants were
recruited to reflect the characteristics of ‘typical’ BNPL users
identified as part of Which?’s profiling research, which in
practice meant we did not recruit less affluent consumers
(incomes below £10,000 a year), and recruited larger samples of
consumers who have dependent children at home, have missed a bill
or credit repayment in the last 12 months, and/or have
experienced a major life event in the last 12 months than would
be typical in the UK population.
Participants were asked to discuss their purchasing habits,
experience using BNPL, perception of BNPL and other debit and
credit products and their understanding of whether and how BNPL
products are regulated in a structured interview. Fieldwork took
place in September 2021. Participants were recruited by Roots
Research Ltd, a specialist, independent research recruitment
agency.
Previous Which? research
New Which? report challenges
stereotype of buy now, pay later users as fashion-conscious young
consumers
Late fee and debt risk warnings
absent as major retailers bombard online shoppers with Buy Now
Pay Later, Which? investigation reveals
How to shop safely with BNPL
- Always read the T&Cs carefully before deciding which
scheme to use (and be clear on the penalties if you miss a
repayment)
- Set up alerts for payments
- Know your rights if something goes wrong with your online
order
- Make any returns promptly
