Which? calls for stronger safeguards to warn shoppers of Buy Now Pay Later debt risk

Which? is calling for stronger safeguards to stop online shoppers from choosing Buy Now Pay Later to pay for products without knowing the risks, as new research from the consumer champion reveals many people do not think that they are taking on debt when using this payment method.

Buy Now Pay Later (BNPL) has soared in popularity in recent years as a way for consumers to pay for goods and services, with the biggest provider Klarna now boasting 13 million customers in the UK.

But Which?’s research, carrying out in-depth interviews with 30 typical BNPL users, has raised concerns that shoppers do not fully understand the risks of choosing a ‘pay later’ option at the checkout.

Many of the BNPL users interviewed by Which? did not think of BNPL schemes as a form of credit, meaning they could unwittingly be exposing themselves to serious risks of missing repayments, such as late fees, marked credit reports or referral to a debt collector.

Instead, participants described the schemes as a ‘way to pay’ or a ‘money management tool’, rather than a credit provider. One user said: “It allows payments to be spread out for budgeting. It made things possible which in one go would have been extremely difficult and I would have probably had to borrow money from elsewhere.”

Though BNPL schemes are a form of credit, they work differently to more traditional methods of borrowing such as credit cards. Not all BNPL schemes run hard credit checks, for example, and users can normally sign up to a BNPL scheme in a matter of clicks.

Which? research found it was precisely this speed and simplicity when selecting BNPL at the checkout that contributed to users’ misunderstanding. Another user said: “It seems really convenient and no hassle. It just asks a few questions so it doesn’t feel like you’re committing to a credit agreement.”

The research also revealed low engagement with BNPL providers’ terms and conditions. Most BNPL users said they either skimmed the T&Cs or simply ticked a box to say they had read them in full.

As a result, some users had a limited understanding of the consequences of missing payments, and the safeguards and checks carried out by BNPL providers. Some participants were not aware there were late payment fees at all.

Throughout the research, Which? also found that BNPL users do not consider the prospect they might struggle to make repayments. In fact, using BNPL schemes made some consumers feel less concerned about making purchases they would not otherwise view as necessary or affordable. “It softens the blow psychologically. It almost doesn’t feel like I’m blowing £100 on shoes,” said one participant.

Concerningly, many of the participants wrongly assumed the schemes were regulated. “I am surprised, I am shocked, they should be regulated. If you have a service that is not regulated you have no protection for consumers,” one participant said.

This lack of understanding around BNPL products is particularly concerning given previous Which? research that found people are more likely to be using BNPL at stressful and challenging times in their lives.

Missing a credit repayment or bill or experiencing a major life event – such as getting married, having a baby, moving home or being made redundant – increases the odds of using BNPL by around a third (38% and 35%, respectively).

That is why Which? is calling for stronger safeguards to protect consumers, including steps in the checkout process to ensure people understand they are borrowing money when using BNPL, and warnings about the risks of using the schemes.

Key information, such as payment terms, late fees and the potential consequences of missed payments, should be communicated at the point of transaction to help consumers make informed choices. Given the immediate risk, BNPL providers should proactively make their key terms and conditions more accessible, rather than waiting for regulation.

Affordability assessment should also be carried out for all BNPL transactions ahead of regulation being introduced.

As the government’s consultation into regulation of the BNPL market closes, the consumer champion wants no delay in regulating these schemes to ensure that those who use it are properly informed and protected.

Rocio Concha, Which? Director of Policy and Advocacy, said:

“Buy Now, Pay Later (BNPL) schemes can offer speed and convenience at the checkout, but our research shows that many users do not realise they are taking on debt or consider the prospect of missing payments.

“That is why there must be stronger safeguards to protect consumers and warn about the risks of using the schemes. Payment terms, late fees and the potential consequences of missed payments should be communicated at the point of transaction.

“There must also 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.”

Which? conducted in-depth interviews with 30 consumers who had used BNPL products in the last 12 months. Participants were recruited to reflect the characteristics of ‘typical’ BNPL users identified as part of Which?’s profiling research, which in practice meant we did not recruit less affluent consumers (incomes below £10,000 a year), and recruited larger samples of consumers who have dependent children at home, have missed a bill or credit repayment in the last 12 months, and/or have experienced a major life event in the last 12 months than would be typical in the UK population.

Participants were asked to discuss their purchasing habits, experience using BNPL, perception of BNPL and other debit and credit products and their understanding of whether and how BNPL products are regulated in a structured interview. Fieldwork took place in September 2021. Participants were recruited by Roots Research Ltd, a specialist, independent research recruitment agency.

Previous Which? research

New Which? report challenges stereotype of buy now, pay later users as fashion-conscious young consumers

Late fee and debt risk warnings absent as major retailers bombard online shoppers with Buy Now Pay Later, Which? investigation reveals

How to shop safely with BNPL

• Always read the T&Cs carefully before deciding which scheme to use (and be clear on the penalties if you miss a repayment)
• Set up alerts for payments
• Know your rights if something goes wrong with your online order
• Make any returns promptly

About Which?

Which? is the UK’s consumer champion, here to make life simpler, fairer and safer for everyone. Our research gets to the heart of consumer issues, our advice is impartial, and our rigorous product tests lead to expert recommendations. We’re the independent consumer voice that influences politicians and lawmakers, investigates, holds businesses to account and makes change happen. As an organisation we’re not for profit and all for making consumers more powerful.

The information in this press release is for editorial use by journalists and media outlets only. Any business seeking to reproduce information in this release should contact the Which? Endorsement Scheme team at endorsementscheme@which.co.uk.