Barclays hits out at unregulated buy now pay later products
Unregulated buy now pay later (BNPL) products can carry unintended consequences that consumers are often unaware of, according to research from Barclays.
2,000 Brits, who have previously used BNPL services, were surveyed for this.
39% admited they lack a full understanding of how the products work.
And with 35% stating 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, Barclays warns.
36% admitted to using BNPL to buy more than they are able to afford and 25% reported struggling to keep track of their spending having taken out loans with several providers. One in four say this has caused them to miss a repayment.
According to Barclays, 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 don’t know that some BNPL providers charge late fees for missed payments, or that this can negatively impact their credit score (20%).
58%, meanwhile, are unaware that when they take out unregulated loans, they are typically not as well protected as those made using regulated payment methods.
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). However, with an unregulated product, this option is unavailable.
Antony Stephen, CEO at Barclays Partner Finance, says: “This research shows that more must be done to educate consumers using unregulated BNPL 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.”
The gloves are off
There has been increasing political and regulatory scrutiny of BNPL companies in recent times, based around the aforementioned concerns.
As a result, one of the biggest players in this area, Klarna, has been taking aim at traditional banks and credit card companies.
Last month, for instance, it issued research showing that one in every two UK consumers is planning to ditch their credit card entirely for Christmas shopping this year, with two-thirds of credit card owners wanting to avoid paying interest.
