UK Data Shows BNPL Default Rates Increase as Popularity Grows

The wildfire popularity of buy now, pay later (BNPL) has created concerns about how it will affect the way young people spend, a Financial Times report said Saturday (Feb. 12).

Consumer advocates said the quick growth of the new form of payments, which involves paying in installments over several months, will entice younger people to spend more than they can afford.

“Our research shows that many users do not realize they are taking on debt or consider the prospect of missing payments,” warned Rocio Concha, director of policy and advocacy at the U.K. consumer rights group Which?.

Per the report, the Centre for Financial Capability found that almost a quarter of U.K. adult consumers who had used BNPL didn’t pay on time. That amount rises to about one-third of consumers between the ages of 18 and 34.

In the U.K., there has been a sharp rise in living costs, and customers are seeing the highest inflation in decades. Energy costs are also rising steeply as well.

Swedish BNPL giant Klarna is rolling out a card in the U.K., while companies like online bankers Monzo and Revolut are testing the BNPL waters.

Barclays and Amazon have announced a new BNPL feature, Installments, for purchases of £100 or more.

According to the U.K.’s Financial Conduct Authority, £2.7 billion was spent on BNPL transactions in 2020, and that number doubled, to £5.7 billion, in 2021.

PYMNTS wrote recently that smaller businesses have been looking at BNPL as an alternative to the traditional ways of paying.

Read more: Small Businesses Embrace BNPL as Corporate Card Alternative

In Latin America, the report says 88% of businesses lack access to traditional credit, and in the U.S. small businesses usually don’t have the best access to credit.

Because of that, companies like KEO World are applying the BNPL concept to business, with the FinTech supporting 12,000 businesses in Colombia, the Dominican Republic, Ecuador, Peru and Mexico.

The allure of BNPL is that, when a business needs money for inventory, it can get fast approval, finance the inventory and pay for it later from sales.

“The big benefit in the business, more than in the consumer space, is that normally these businesses can take this inventory, sell it or make it to work to produce money before they need to pay for it,” KEO World Founder and CEO Paolo Fidanza said.