Barclays reveals pitfalls of unregulated BNPL agreements for Christmas shoppers, with two in five users unclear what they’re signing up to

• 36 per cent of ‘buy now pay later’ (BNPL) users do not fully understand the consequences of missing repayments
• 52 per cent are unaware that unregulated BNPL providers don’t have to carry out robust affordability checks
• 36 per cent admit to using BNPL to spend more than they can afford and 35 per cent expect to use BNPL more often as the cost of living increases 
• Barclays has compiled advice for shoppers considering a new credit agreement, to ensure the product they’re signing up for suits their needs

‘Buy now pay later’ (BNPL) can offer a convenient way to spread the cost of purchases without incurring any fees or interest, but unregulated BNPL products can carry unintended consequences that consumers are often unaware of, according to new research from Barclays*.

More than a quarter (27 per cent) of UK adults have used BNPL, according to the study. Of those, almost half (46 per cent) say they are likely to do their Christmas shopping using this payment method to purchase gifts for friends and family, enabling them to spread the cost out over several months.

Yet the data shows that shoppers’ knowledge of BNPL products is patchy, with two in five (39 per cent) admitting they lack a full understanding of how the products work. And with 35 per cent admitting they’re more likely to use BNPL as the cost of everyday living increases, a growing indebtedness bubble could be on the horizon unless steps are taken to fully regulate** lending at the point of sale.

Over a third (36 per cent) admit to using BNPL to buy more than they are able to afford and a quarter (25 per cent) reported struggling to keep track of their spending having taken out loans with several BNPL providers. One in four (24 per cent) say this has caused them to miss a repayment.

Regulated lending and consumer protection

When lending is regulated, robust affordability assessments are required on a customer’s personal financial circumstances before a loan is approved. This ensures credit is affordable, and that the customer is only borrowing what they are comfortably able to pay back.

One of the pitfalls of unregulated products is that thorough checks on a customer’s personal financial circumstances are not always carried out, and as a result, customers may be more likely to have insufficient funds available to pay back borrowing on time.

The research shows that the consequences of defaulting on a loan instalment are not fully understood by many BNPL shoppers (36 per cent). One in five (19 per cent) don’t know that some BNPL providers charge late fees for missed payments, or that this can negatively impact their credit score (20 per cent).

Almost three in five shoppers (58 per cent) are unaware that when they take out unregulated loans, they are typically not as well-protected as those made using regulated payment methods. For example, purchases made with credit cards and regulated point-of-sale loans are covered by Section 75 of the Consumer Credit Act, which means the lender must protect goods and services between £100 and £30,000 for free. If you pay with a regulated product and there's an issue, such as faulty or non-delivered goods, Section 75 means you could get your money back.

Similarly, if customers have cause to complain about a regulated payment method and are unhappy with the decision made by their financial provider, they are able to escalate it to the Financial Ombudsman Service (FOS); the free and easy-to-use service that settles complaints between consumers and financial services businesses. However, with an unregulated product, this option is unavailable making it more difficult for customers to have a result overturned in their favour.

Antony Stephen, CEO of Barclays Partner Finance, said:

“This research shows that more must be done to educate consumers using unregulated ‘buy now pay later’ products. Too many people are taking out these loans without realising the impact it could have on their finances and with festive shopping in full swing, it’s important shoppers don’t run risk of signing up to agreements, which they may struggle to repay affordably in future.

 “To protect consumers against taking on more debt than they can comfortably afford to repay, and to ensure minimum standards exist across the sector, we believe regulation should ensure all BNPL providers are required to undertake appropriate affordability assessments, consistent with those in place for other regulated consumer credit products.”

Barclays Partner Finance has been providing regulated BNPL products and services for many years, offering interest-free and interest bearing loans over a range of lending periods. For example, the company has been offering interest-free financing on iPhones with Apple since 2019 and is actively expanding its offering by partnering with some the UK’s biggest retailers.

Barclays has put together four questions shoppers should consider when choosing a new credit agreement:

1.      What is the cheapest form of credit for your needs?

If managed correctly, BNPL can be a useful way to spread the cost of a purchase without incurring any fees or interest. However, with some ‘buy now pay later’ providers, you risk being charged a late fee if you miss a repayment, and these fees can add up, and may even impact your credit score.

If you’re considering an interest-free option, make sure you understand the repayment schedule, and be realistic about whether you’ll be able to stick to it – if you think you’re likely to miss a repayment and incur additional fees, consider whether another form of lending might be cheaper in the long-run.

2.      Can you afford the repayments?

BNPL lending is often not reported to the central credit reference agencies, so if you’ve already taken out one or more BNPL agreements, other lenders may not be able to see that, making it harder for them to gauge whether you can afford an additional loan. Therefore, you should always ask yourself whether you can afford to make additional repayments, on top of your existing commitments, before taking on more debt – otherwise you could end up having to repay more than you can comfortably afford.

This is even more important when taking out new unregulated BNPL products, as providers are not required to undertake the same level of affordability checks as traditional banks and credit card companies, so even more of the burden falls on you to remain disciplined.

3.      How will you manage the repayments?

Make sure you have a plan to monitor when each of your repayments is due, to avoid missing repayments and potentially incurring fees. The more credit providers you have, the more difficult it will be to keep track, so the more disciplined you’ll need to be to juggle your various commitments. If you’re someone who struggles to stay on top of admin, consider limiting the number of credit providers you borrow from, to make it easier to manage repayments.

4.      What level of protection are you looking for?

With unregulated BNPL purchases you are forfeiting certain protections that you have when using regulated products, such as the ability to escalate complaints to the Financial Ombudsman Service (FOS); the free and easy-to-use service that settles complaints between consumers and financial services businesses. If you make a complaint and are not happy with the outcome from a regulated provider, you can escalate it to the FOS. However, with an unregulated product, you don’t have this option, so if you’re unhappy with the outcome of a complaint, it’s more difficult to get the result overturned in your favour.

– Ends –

Notes to editors

For more information, please contact Oliver Palca at oliver.palca@barclaycard.co.uk or on +44 (0)7880 184 177

About the research

*The research is based on a survey of UK consumers who have previously used ‘buy now pay later’ products. It was carried out between 22nd and 28th October 2021 by Opinium on behalf of Barclays. There were 2,000 respondents, providing a representative sample of UK consumers by age, gender, region, and income group.

To determine the proportion of UK consumers who have used BNPL, Opinium ran a separate survey between 22nd and 26th October 2021. There were 2,000 respondents, providing a representative sample of UK consumers by age, gender, region, and income group.

** Under current regulation, some types of short-term, interest-free credit sit outside the remit of the financial regulator – the FCA. As a result, many BNPL providers do not have to follow the same rules as traditional banks and credit card companies regarding responsible lending. For example, they don’t need to do the same level of affordability and credit checks, and there is a lower bar when it comes to making sure that customers understand the agreements they’re taking out.

On 2 February 2021, the government announced its intention to bring unregulated interest-free BNPL products into regulation given the potential risk of consumer detriment highlighted in ‘The Woolard Review A review of change and innovation in the unsecured credit market.’ The consultation is live and closes on 6 January 2022. https://www.gov.uk/government/consultations/regulation-of-buy-now-pay-later-consultation

About Barclays

Barclays is a British universal bank.  We are diversified by business, by different types of customer and client, and geography.  Our businesses include consumer banking and payments operations around the world, as well as a top-tier, full service, global corporate and investment bank, all of which are supported by our service company which provides technology, operations and functional services across the Group. For more information, visit home.barclays