Growth in Buy Now Pay Later finance has surged during the pandemic

Updated: Apr 2, 2021

There are now 5 million people borrowing £2.7bn from services like Klarna, Clearpay and Laybuy as sales in online retail surged in 2020. Millions of households across the UK took to using BNPL services out of convenience; allowing customers to defer payments for a set period of time or pay for items in instalments, often without paying interest.

These services have proved popular among younger consumers, in particular, by offering a cheaper way to try purchases before deciding whether to keep or return the items. The use of these services have surged over the course of the pandemic.

The idea of having purchases delivered now that you don’t have to pay for until a later date might seem appealing, but can often foster a false sense of security, as interest charges can be high and it’s easy to get caught in a trap of relying on debt to make future purchase. For some people BNPL has become a really easy way to fall into problem debt.

Buy now, pay later services for online shoppers are growing at 39% a year, despite worries that young consumers are sleepwalking into debt

Whilst this type of finance has existed on the market for years, the past couple of years – exacerbated by the Covid-19 pandemic in 2020 – has seen a surge in companies popularising the service with younger consumers.

Often people, particularly younger consumers, aren’t aware of the potential risks of paying in this way. These risks include; damage to your credit rating if you are late or miss a payment and charges of high interest and fees if you can’t afford to pay what you owe on time. The Woolard Review (2021) into credit services found that one in ten people using BNPL services already had debt arrears elsewhere.

Buy now pay later services are amongst the fastest-growing online payment methods in the UK, growing twice as quickly as bank transfers and more than three times the rate of annual growth in digital wallets.

Data provided by providers suggests 75% of users are female, and 90% of all transactions involve fashion or footwear. Half of users are aged 25 to 36, and another quarter under 24.

If there are specific purchases you need to make, it might be worth looking at the alternatives to buy now pay later services

See if there are any ways that you could cut back on other household expenses to find the money you need.

If you can’t take out a buy now pay later agreement and you would find it difficult to use the mainstream credit options, like an overdraft, personal loan or credit card you might be tempted by other kinds of high-cost borrowing like payday loans or doorstep lenders. However, these forms of credit can work out to be very expensive and you need to think very carefully before you decide to borrow in this way.

Debt charities and campaigners have argued that advertisement via social media – often through influencers – has ‘glamourised debt’, suggesting the services are making it too easy to fall into debt and unaffordable borrowing.

Here at ilumoni, we want to encourage consumers to Borrow Well …

While the impact of the pandemic and new ways of borrowing are changing the market, it is important for people to understand and take control of their borrowing – particularly on unsecured and often misunderstood forms of borrowing such as those provided by BNPL services.

Which is why, at ilumoni, we’re on a mission to make it easy for people to Borrow Well. We’ve been working to create an App that uses artificial intelligence, combining open banking, credit and eligibility data, to identify the simple things people can practically do to unlock better borrowing and start to Borrow Well.

If you are interested in hearing more about our app, register and we’ll keep you up to date with all of our latest developments.