The fintech industry has played a big part in delivering more financial services to the masses, but when it comes to innovation and having a positive impact on consumers - not all is created equal. 

Buy Now Pay Later (BNPL) is a case in point. This alternative source of payment method, which enables consumers to break up purchases into manageable instalments, has made it easier for people to buy on impulse, but the pain of purchase can be felt further down the line as consumers struggle to make their payments. 

Almost a third of the UK’s 10 million BNPL users reported that their repayment plans are unmanageable, according to Barclays in February 2022, driving home the destructive nature of BNPL during the cost of living crisis. 

With aggressive collection practises and absent affordability checks, unregulated BNPL giants could tarnish fintech’s legacy.

BNPL’s Impact on Consumers

BNPL can trace its roots to Stockholm in 2005 with Klarna, re-inventing the options available during checkout at online stores. The BNPL proposition enables consumers to split payments up into smaller instalments, typically three payments over three months, opening a credit line without the same affordability checks carried out by traditional lenders/credit cards. 

The advent of BNPL, an industry still dominated by fintechs, has had a positive impact on some consumers, enabling them to split large purchases up over multiple paychecks. This source of credit is available to consumers with low credit ratings, helping them to bridge paychecks and break up large purchases in the absence of banks and traditional lenders. In addition, the short-term line of credit is initially interest-free, providing savvy consumers with an additional financial tool as they manage their budgets.

However, BNPL providers often negate the benefits of accessible short term lending with aggressive collection practises. Following the initial 0% APR period, BNPL providers hike up rates, greatly inflating the outstanding loan amount. BNPL providers also routinely report late payments to the Credit Ratings Authority (CRA) straight away, causing an impactful decrease in credit rating without reasonable attempts to recoup the funds from the consumer.

Unfortunately, consumers are often unaware of the terms they are agreeing to when taking out BNPL loans at checkout. Displayed via a simple pop-up, providers utilise a low-friction experience and avoid the words “loan” or “credit”. These tactics are utilised to separate BNPL from mainstream credit providers, convincing more consumers to take out loans.

In addition, BNPL currently resides outside of consumer credit regulation, enabling providers to issue loans to vulnerable consumers with bad credit histories. The government has recognised this issue and has promised to increase regulatory oversight of BNPL with fresh legislation, but the Treasury recently shelved the fresh regulations as BNPL providers threatened to leave the market entirely. 

Lack of BNPL regulation has incurred a significant impact on UK consumers; Finder.com states that over 36% of UK consumers (19+ million) have used BNPL services, demonstrating the breadth of this issue. Statista reported that the average monthly debt accrued by BNPL users aged 18-34 is  £191, exceeding the average monthly savings rate of £180 (Nimblefins) - meaning that the average young BNPL user is completely unable to build their savings due to suffocating BNPL debt. 

How Fintechs are Supporting Consumers

It’s clear to see that widespread usage of BNPL services is detrimental to the financial wellbeing of many UK consumers, often leading to ill-advised high-cost borrowing and hampering their ability to save for their future. Fintechs focused on educating the general public on issues including predatory lending have an important role to play, reducing the proportion of customers susceptible to BNPL prompts at checkout. They’re also educating people about savings accounts, budgeting and more, having a real-world impact on the finances of millions across the country. A recent report by lender Creditspring stated that 31% of all UK citizens, and 51% of 18-34 year olds, are unaware that BNPL usage could lead to debt, highlighting the urgent need for further financial education.

Increased financial visibility also aids consumers as they evaluate the ever-growing range of financial tools available to them, providing oversight of all outstanding debts and open accounts. Utilising automation, open banking, machine learning and more, fintechs are finding new ways of supporting individuals in their journey to financial wellness. 

Households in the UK are under extreme financial pressure, fighting rising inflation and interest rates to balance their budget. The presence of unregulated BNPL lenders at checkout is making the task more difficult, providing another slippery slope for vulnerable consumers to fall down. However, in the absence of government regulation, fintechs are stepping up to support consumers, utilising increased visibility and education to improve individuals’ relationships with their finances.