BNPL services have become part and parcel of the paying for goods and services for British consumers and the coming months could drive this significantly.
With the government now moving to regulate the score, data from credit ratings agency Equifax UK suggests that BNPL use may have already peaked after years of sustained growth.
The agency’s latest survey found that 38% of consumers made use of BNPL this year, down from 48% in 2024. A further 11% used BNPL once a month and 29% at least once a year, though this latter figure rose to 54% among 18-24 year olds.
Regardless of the declines, this is still a substantial figure, with over a third of UK consumers using BNPL at some point. The value of BNPL payments has also risen from an average of £269 in 2023 to £357 this year.
Equifax has identified a few trends driving the adoption of BNPL, with 27% stating that spreading payments without incurring interest was the main benefit whilst the costs-of-living crisis, a commonly cited factor, was also highlighted.
Rising living costs have likely driven the use of BNPL for purchasing day-to-day items. Equifax found that 17% of respondents used it to buy food, drinks and toiletries (up from 11% last year), 13% for takeaways or restaurants (up from 9% last year). Additionally, respondents stated that they planned to use BNPL for white goods (27%), electronics (26%) and fashion (23%).
Craig Tebbutt, Chief Strategy and Innovation Officer at Equifax UK, said: “With BNPL usage still high and typical spend levels increasing, it is essential consumers experience the same protections and benefits they receive from other credit products, including the positive impact on their credit files when they make repayments on time.
“With Christmas shopping season already upon us, BNPL’s simple application process and zero-interest terms make it an appealing choice for many to help spread costs, but it’s also easy to overstretch and important shoppers still treat BNPL just like any other form of credit by only borrowing what they can afford to pay back within the payment terms provided.”
The coming months could prove critical to BNPL use, however. Black Friday sales conclude this week (29 November) and Cyber Monday next week (1 December). Meanwhile, the even bigger spending driver of Christmas is now less than a month away.
Equifax found that 58% of UK BNPL users, amounting to around 12 million people, plan to use these services to fund Christmas shopping. This will include Black Friday and Cyber Monday shopping activity, with many customers using deals during these events as a chance to get a bargain on Christmas gifts for friends and family.
BNPL, credit and change on the horizon
BNPL is not the only staggered payments system popular among Brits though, especially as the financial pressures of the holiday season become more and more pronounced. Credit remains a popular means of payment, particularly retail credit.
Moneyhub, an Open Banking provider, projects that retail credit users will spend an average of £1,012.55 over the Christmas season, of which £759.71 will be financed entirely through retail credit.
Increased use of credit of course comes with its risks though, namely the challenge of repayment. Moneyhub found that 64% of consumers struggle to repay debt, and 28% of credit-using UK consumers have fallen into collections or arrears on Christmas payments.
Difficulties with repaying credit debt have led to 53% of consumers to cut back on spending, the firm found, whilst 24% have taken on extra work and 16% have sold items.
Though BNPL may be a more attractive option to some due to the lack of interest, concerns around indebtedness continue to grow in line with the sector’s own growth, prompting the government to move to better regulate the sector last month.
“For many people, the excitement of holiday spending can quickly become the stress of managing repayments in the New Year,” says Suzy Homewood, Managing Director of Decisioning at Moneyhub.
“New regulations such as the FCA’s Consumer Duty, and the upcoming Buy-now, Pay-later rules, have made it clear to firms that they need to do more to understand their customers’ financial situation, not just at application, but throughout the term of their loan.”
HM Treasury introduced new rules on BNPL in mid-October, part of a wider focus on financial services adopted by the Labour government. The Financial Conduct Authority (FCA) will apply affordability rules to the BNPL space, among other measures.
These rules received a better reception from BNPL providers like market leader Klarna than the ones adopted in the US earlier in the year, which applied credit rules to BNPL. However, Equifax argues that BNPL providers should be required to report to major credit reference agencies to make a positive impact on people’s credit scores.
“Change is on the horizon, with the UK government’s consultation on BNPL regulation set to close on none other than Black Friday,” Equifax’s Tebutt continues.
“This is a step in the right direction but regulation may not yet take effect for some time, and consumers will only start to fully benefit once BNPL providers consistently report data to credit reference agencies, just like other lenders.
“Providers are trying to assess customer affordability responsibly, but this is challenging as long as some BNPL data remains absent from credit files.
“Providers don’t need to wait around for more regulation and can start reporting this right away to help boost inclusion and protect consumers from a tough January.”
