As more people resort to lenders to deal with rising living expenses, a third of purchase now, pay later shoppers are in “unmanageable debt.”
Utilization of systems like Klarna and Clearpay, which permit payments to be extended over weeks or months, has increased dramatically, as noted by retailers.
According to Barclays and the debt charity StepChange, the average borrower is now paying off 4.8 purchases at once, up from 2.6 in February, and some shoppers are even utilizing the discounts to buy food.
The unregulated buy-now, pay-later (BNPL) market has exploded in recent years and is currently estimated to be worth £6 billion.
The lenders, which provide interest-free borrowing online and in stores, are reportedly used by more than 17 million individuals. Some critics worry that BNPL tempts consumers to overspend.
Lenders would need to conduct affordability checks, ministers revealed earlier this week. However, campaigners claim that the Treasury is not acting quickly enough, thus this may not happen until 2024.
Barclays and StepChange want businesses to go further in defending their clients. Retailers are a major gatekeeper in the lending process, and it is essential that they conduct due diligence on BNPL products, according to Antony Stephen of Barclays Partner Finance.
“However alluring it may be to judge BNPL payments solely on their merchant costs or acceptance rates, they need to go farther and look at how responsible the lending process is behind each transaction,” the statement reads.
According to a survey conducted by the bank and charity, the average BNPL borrower had £254 in debt, and 31% indicated that making payments was “unmanageable.”
Shops providing By the end of 2022, according to BNPL, it will finance close to one-fourth of all sales.
A rise in demand for the services since the beginning of the year was also recorded by nine out of 10 businesses.
There is evidence that BNPL is also being used to purchase necessities like groceries, according to Richard Lane of StepChange.
Even if it is short-term and has no interest, it can nevertheless contribute to problem debt.
A Treasury official stated that the department was dedicated to making sure BNPL regulation was “proportionate and effective.”