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Which? raises concerns over buy now, pay later schemes

The ease of use and increased availability of buy now, pay later schemes masks the risks, says consumer protection champion

Consumer rights group Which? is calling for stronger protection for consumers using buy now, pay later (BNPL) products as fintech accelerates and simplifies its take-up.

Which? wants stronger safeguards to ensure that consumers understand the risks before clicking to accept products.

This follows research from Which? that found many BNPL users do not think it is a form of credit and therefore leave themselves open to problems in the future.

The popularity of BNPL schemes has surged through fintechs such as Klarna, which was founded in 2005 and already has 13 million customers in the UK alone.

Which? interviewed 30 BNPL users, and was concerned they did 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,” it said.

BNPL users interviewed referred to the scheme as a method of paying or a money management tool rather than a form of credit. One 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.”

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But many BNPL schemes are easy to sign up for and do not carry out rigorous credit checks, leaving users potentially vulnerable to problems repaying in the future. “Research found it was precisely this speed and simplicity when selecting BNPL at the checkout that contributed to users misunderstanding,” said Which?

Another user interviewed 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.”

Which? also found that using BNPL schemes made some consumers feel less concerned about making purchases. “It softens the blow psychologically. It almost doesn’t feel like I’m blowing £100 on shoes,” said one participant.

The research also found that BNPL users did not realise that schemes are currently unregulated. A government consultation into the regulation of the BNPL has been run.

Which? said information, such as payment terms, late fees and the potential consequences of missed payments, should be communicated at the point of transaction. “Given the immediate risk, BNPL providers should proactively make their key terms and conditions more accessible, rather than waiting for regulation,” said Which?

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

Taking on debt

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