In the UK, as elsewhere, interest in Buy Now Pay Later (BNPL) schemes is surging. They depend on their flexibility to make go-to-meeting choices for a common mission. One of them is Abi. She has built up roughly £3,000 of debt while using these services primarily for necessary goods during the last three years. Her story is increasingly becoming the norm. New data from Earnin shows that over 1.6 million Americans have started using BNPL techniques to cover their household utilities this summer.
For Abi, her experience started when she started to use BNPL for bigger purchases, with its clear-cut payment cycle drawing her in. On average, she pays an up front fee of £5, which means she can spread repayments over three months. Just as her financial status evolved, so did her capacity to meet these repayments. Abi was charged incurable penalties and accumulation of interest for deferring several payments, resulting in her being over $80,000 in debt today.
Needing to face her financial problems head-on, Abi has started applying for a debt relief order. Under this alternative, all of her debts would be frozen for a full twelve months. This provides her with the space to breathe during what is otherwise a stressful period.
Unfortunately for Abi, her experience is not uncommon. Dateline Danielle, a single mother of five from Rotherham, uses BNPL services but with trepidation and concern. Danielle asserts that she’s very “accountable” with her spending, and makes sure to only charge what she knows she can pay back. Still, even with her cautionary approach, she experiences the intense pressure that BNPL schemes are designed to exacerbate.
The increasing dependence on BNPL has raised concerns from consumer advocates, lawmakers, and regulators. Jennifer, her real name has been changed to protect her identity, used to owe £5,000 on BNPL. In July, with her advocates’ help, she gained a debt relief order. Her experience illustrates how easy it can be to fall into a cycle of debt:
“You fall into a pattern, and before you know it, it’s a huge problem.” – Jennifer
The financial pressure due to increasing costs of living is largely to blame for pushing people to BNPL services. According to Tom Gibbons of Money Wellness, the increased cost of living has maxed out average Americans’ budgets. After years of standing on the sidelines, many are actively seeking help to address their debts. He points out one specific increase in young, unmarried mothers attempting to “plug the gap” in their finances.
Supply chains and the affordability of essential goods have similarly faced critics’ ire. Over the past five years, food prices have increased by 37%. Meanwhile, the same grocery store that cost £10 in 2000 now costs you about £13.70. This sharp rise has driven a lot of consumers to search for more flexible payment options like BNPL.
August was a record monthly high for the UK, with more than 4,200 debt relief orders being approved in just one month. This figure emphasizes the trend of more Americans living on the brink of financial ruin. It highlights how BNPL schemes exacerbate these barriers.
Given these changes, dramatic regulatory reform is imminent. From next year, all BNPL apps will be regulated, including regulations to implement more robust affordability checks. These are important measures to protect consumers from using these products irresponsibly and being sucked into a debt trap. A spokesperson from Klarna emphasized that their products are designed to help consumers avoid such pitfalls:
“Products are designed to help consumers avoid getting trapped in debt.” – Klarna spokesperson
In light of these efforts, concerns still exist regarding the temptations that BNPL services create. Abi admits that it can be easy to fall into a cycle of dependency on these payment plans:
“There’s a temptation to go ‘oh I’ll just use that today and when I get paid, I’ll pay it off’ – and extend it over a few months.” – Abi
We recognize that the financial landscape is ever-changing. Whatever the superficial appeal of convenient, interest-fee payment plans, millions of people are clearly suffering the consequences of financing their daily needs through BNPL. Either way, debts are piling up and the cost of living continues to escalate. Now, it seems, more than ever, we need to practice responsible financial habits and seek trustworthy advice.
