FCA finds significant increase in number of people buying now and paying later

The regulator said it wants to ensure that consumers, particularly those in vulnerable circumstances, have adequate protections.

An estimated 14 million adults used buy now, pay later payment options in the six months to January 2023, according to the FCA (Alamy/PA)

An estimated 14 million adults across the UK used buy now, pay later (BNPL) payment options at least once in the six months leading up to January 2023, according to the City regulator.

The Financial Conduct Authority (FCA) said 27% of adults (equating to around 14 million people across the UK) used BNPL at least once in the six months prior to January 2023.

This proportion has increased from 17% of adults who had used such products in the preceding 12 months in May 2022.

The regulator said its research indicated that frequent users of BNPL tended to be more likely to be in financial difficulty, such as having rising debts or missed bill payments.

We want to ensure that consumers, particularly those in vulnerable circumstances, have adequate protections and are given sufficient information

Sheldon Mills, FCA

Sheldon Mills, executive director of consumers and competition at the FCA, said: “Our research shows a significant increase in the use of BNPL over the past year.

“When used appropriately, the product provides valuable benefits, but we want to ensure that consumers, particularly those in vulnerable circumstances, have adequate protections and are given sufficient information.”

While the FCA does not have regulatory oversight over BNPL products, it said it is determined to protect consumers using financial services where it can.

The FCA said it was concerned that PayPal and QVC customers were potentially at risk of harm because of how some of the contract terms were drafted.

It said both firms have voluntarily made their continuous payment authority terms easier to understand, and PayPal has made terms relating to what happens when a consumer cancels the purchase funded by the loan clearer and fairer.

The FCA is also reminding all firms to ensure that their consumer contracts comply with all requirements of consumer protection legislation that apply to their business.

Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “On paper, the fact there’s no interest to pay on money borrowed this way makes it a very sensible option to help us manage our budgets. There’s no doubt that millions of people are taking advantage of BNPL in a way that works for them.

“However, for others it becomes a dangerous habit – encouraging them to buy things they don’t really need and can’t afford.”

If you’re taking on more debt than you can manage, juggling it with other forms of borrowing, or getting in over your head, there’s a real risk it’s doing more harm than good

Sarah Coles, Hargreaves Lansdown

She added: “The best way to protect yourself is to actively challenge any spending through BNPL. If it’s something you need, can afford, and you’re completely on top of repayments, then you may want to use it to spread the cost.

“However, if you’re taking on more debt than you can manage, juggling it with other forms of borrowing, or getting in over your head, there’s a real risk it’s doing more harm than good.

“It’s worth taking stock. Some people will be able to work their way out of a debt issue with careful budgeting and repayment. However, if the problem has gone too far for you to see a way out, you may want to get help from a debt charity.”

Richard Lane, director of external affairs at StepChange Debt Charity, said: “Given the immense financial strain so many people have been under for the past two years, it’s no surprise to see the use of BNPL on the rise.

“While we know that these products work well for millions of consumers, for those who are struggling to make ends meet it is an unregulated line of credit which can all too easily result in people borrowing to pay bills or make other repayments.”

A PayPal spokesman said: “As a responsible lender, PayPal voluntarily made changes in July 2023 to a couple of legal terms and conditions relating to PayPal Pay in 3.

“We have worked closely with the regulator over these matters and have now agreed an undertaking with it.

“This will give further clarity to customers who took out Pay in 3 loans under the old terms.

“PayPal is committed to treating its customers fairly and giving them accurate, easy to understand and transparent information.

“PayPal takes its regulatory obligations seriously and is fully committed to complying with all applicable laws and regulations.”

A statement from QVC UK said: “We acted promptly following the FCA’s contact and have voluntarily made appropriate changes to our terms so they are easier for customers to understand. We have fully co-operated with the FCA in resolving their concerns.”