Consumers lack awareness of the costs of BNPL, LSB says
New research for the LSB (Lending Standards Board) finds that consumers lack awareness of the true costs of Buy-Now, Pay-Later (BNPL) products, underscoring the need for more awareness of these products, alongside proactive outreach from lenders to those who may be struggling financially. BNPL use increases around the Christmas, Black Friday, and Cyber Monday shopping period, leaving many households at risk of struggling with unexpected repayment fees this January.
The research, carried out for the LSB by RFI Global, found that only half (52%) of BNPL users are aware of late payment fees, and just 50% know roughly how much these fees might be before they incur them. 15% of BNPL users have incurred late fees, with this figure rising to 22% for those with ‘poor’ or ‘very poor’ credit scores.
The data also revealed that just over a third of BNPL users (36%) say they only decide to use BNPL at the check-out stage, while three-fifths of BNPL users are unaware that BNPL products are unregulated.
Late last year, the UK government announced plans to introduce BNPL regulations – but these will not be in place until 2026 at the earliest.
Emma Lovell, the LSB chief executive, says: “There is a place for BNPL products in the financial services sector: users say these products help them feel more in control of their spending, or that they have helped them through financially difficult situations. But there are warning signs flashing that these products aren’t always being used in a properly informed or considered way.”
34% of British consumers with ‘poor’ or ‘very poor’ credit scores use BNPL, while a further 42% combine BNPL products with credit cards. For all consumers, these figures are just 12% and 33%, respectively. Sixty-five per cent of monthly BNPL users think they will need to access more credit in the next year to cover the rising cost of living, compared to 28% of non-credit users.
Worryingly, over a third (35%) of BNPL users say they often make impulse purchases they later regret, while just 17% of non-BNPL users say the same thing.
Emma Lovells adds: “We can see from the data that BNPL users are precisely the kind of consumers that need the most protections and support. The government’s announcement on BNPL regulation was very welcome, but in the period before regulation comes in, lenders can’t rest on their laurels. More awareness of products and what is required from customers is needed, along with proactive outreach, especially for those experiencing financial difficulty. BNPL lenders should consider working towards best practice frameworks in the absence of statutory regulation to keep pace with the latest trends and ensure the best outcome for their customers.”