Which? calls for action on buy now pay later debt risks
Which? has called for stronger safeguards to stop online shoppers from choosing buy now pay later (BNPL) services to pay for products without knowing the risks.
BNPL has soared in popularity in recent years, with the biggest provider Klarna now boasting 13 million customers in the UK.
But, according to Which? research, involving interviews with “30 typical BNPL users”, shoppers do not fully understand the risks of choosing a pay later option at the checkout.
Many 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.
Though BNPL schemes are a form of credit, they work differently to more traditional methods of borrowing such as credit cards. Not all of them run hard credit checks, for example, and users can normally sign up to a scheme in a matter of clicks.
Which? found it was precisely this speed and simplicity when selecting BNPL at the checkout that contributed to users’ misunderstanding.
Its 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.
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.
Many of the participants wrongly assumed the schemes were regulated.
Rocio Concha, Which? Director of Policy and Advocacy, says: “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.”
Concha concludes: “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.”
