Which? calls for stronger BNPL safeguards

Which? has called for stricter safeguards surrounding buy now, pay later (BNPL) and the potential risks.

The consumer group wants to stop shoppers from choosing BNPL payment solutions without knowing the risks that come with it.

A study conducted by Which? revealed that many people do not understand that they are taking on debt when using the payment method.

The BNPL sector has boomed in popularity over the past 18 months and gives customers the opportunity to spread the cost of products over interest-free instalments.

The UK’s biggest lender is Klarna, boasting over 13 million customers in the country.

Which?’s research carried out in-depth interviews of 30 typical BNPL users and found that the majority of shoppers do not fully understand the risks involved when using a ‘pay later’ option.

Many of the interviewees did not see BNPL as a form of credit, meaning that they could unknowingly subject themselves to the serious financials risks of missing repayments which could include late fees, marked credit reports or referral to a debt collector.

Participants instead viewed the schemes as a ‘way to pay’ or a ‘money management tool’, rather than a credit provider.

“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,” one user said.

The difference between normal credit schemes and BNPL is that not all of them run hard credit checks, for example, and users can normally sign up to a BNPL scheme in a matter of clicks.

READ MORE: New UK firm PollenPay enters the BNPL market

The speed and simplicity of selecting a BNPL scheme at checkout contributes massively to users’ misunderstanding, the report revealed.

Another user added: “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, with mostMost BNPL users claiming they either skimmed the T&Cs or simply ticked a box to say they had read them in full.

Throughout the research, Which? also found that BNPL users do not consider the prospect they might struggle to make repayments.

The research revealed that BNPL schemes made some consumers feel less concerned about making purchases they would not otherwise view as necessary or affordable.

Another said: “It softens the blow psychologically. It almost doesn’t feel like I’m blowing £100 on shoes.”

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).

“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,” Which?director of policy and advocacy Rocio Concha said.

“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.”

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