Buy-now, pay-later – or more accurately, buy now and spread the payments – was already gaining traction before the pandemic as a popular marketing tool. The number of platforms now offering this payment model has ballooned during the pandemic as online shopping has rocketed.
Regulators around the world are now concerned that consumers, mainly millennials and Gen Z fashion shoppers, are being tempted beyond their means. A study, by credit-checking company Credit Karma in the US, revealed almost 40% of those who use “buy now, pay later” (BNPL) have missed more than one payment and saw their credit score affected, Reuters reports.
- In the US, estimates suggest BNPL platforms advanced between $20 billion and $25 billion, although estimates of what is still a new sector vary.
- Regulators in the UK and Australia are already looking at tightening legislation around BNPL. In the US, rules vary by state, but the sector is expected to see much greater scrutiny from the Consumer Financial Protection Bureau under the Biden administration.
- In the UK, BNPL contracts were up almost fourfold last year, with five million users. Following a four-month review of the industry, the UK Treasury says the £2.7 billion sector will be brought under the regulatory Financial Conduct Authority, which means affordability checks will be required before loans are agreed.
“With several buy now, pay later providers planning to expand to higher-value retailers, or offer their products in store, the risk that consumers could take on unaffordable levels of debt is increasing” – John Glen, economic secretary to the UK Treasury.
Sourced from Reuters