Buy-now pay-later debt bubble passes £4bn

British consumers have racked up more than £4 billion worth of debt using buy now pay later (BNPL) services, according to a new study.

Eight million BNPL customers in the UK have outstanding balances which average £538 each (£4.14 billion total). The debt bubble is expected to expand even further this Christmas as 31 per cent of people plan to use BNPL services to do their shopping, the study by smart money platform Credit Karma found.

BNPL has continued growing, despite concern amongst industry experts and government, with research indicating providers have acquired another 1.6 million customers in 2021, totalling 11.6m active UK customers.

Consumer organisation, Which? said customers are being “bombarded” with BNPL schemes by the biggest retailers and often with no information or warnings about the risks of late fees or getting into debt.

“It’s very concerning to see such a huge amount of debt related to these schemes,” Gareth Shaw, head of money at Which? said. “This demonstrates why there should be no further delay to plans for BNPL regulation, which should include much greater marketing transparency, information about the risks of missed payments and credit checks before consumers are cleared to use BNPL providers.”

Credit Karma’s report revealed that almost half of BNPL customers (45 per cent) admitted to falling behind on payments with nearly a third of those falling behind on payments seeing their credit score drop as a result, while a similar number believe they have been rejected for a mortgage after missing repayments.

By the start of October this year, Credit Karma’s research suggests that Britons had spent £5.79 billion via BNPL, with £4.12 billion of this still outstanding to pay.

Buy now pay later providers such as Klarna and Clearpay are commonplace at online checkouts for major retailers such as JD Sports, ASOS and Boohoo.

Klarna refuted the findings from Credit Karma’s study. “Our average outstanding balance is £48 and we restrict the use of our services if a payment is missed to stop debt building up,” a spokesperson from the group said.

The Treasury announced earlier this month that there would be a consultation on the regulation of BNPL. Advice and information charity Citizen’s Advice said BNPL is “like quicksand - easy to slip into and very difficult to get out of.”

“Split payments are offered as a temptation at the checkout, but the consequences can be devastating for those who are least able to deal with them,” Matthew Upton, director of policy at Citizen’s Advice said. “Over half of young people who have used BNPL in the last year struggled to make a repayment. The BNPL sector has grown incredibly quickly and we need consumer protections to keep pace.”

Ziad El Baba, general manager at Credit Karma, said: “Buy now, pay later services can be a great tool for people who wish to make a purchase and break up their payments into smaller, more manageable amounts.”

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