What lenders need to know about the UK Buy Now, Pay Later landscape

These insights show why it’s vital that organisations have a complete picture of how consumers are using this new and growing line of credit.

For some consumers, BNPL is a credit-savvy way of paying for things without incurring interest. For others, it can be used carelessly for multiple, low-value purchases, which accumulate to result in significant additional indebtedness. Prolific use of BNPL could also be a marker of potential financial distress – the ‘canary-in-the-coalmine’ that provides an early indication that someone is getting into financial difficulty.

As BNPL goes mainstream, interest on the impact of these services is growing. Consumption of a line of credit that was previously invisible, is now visible and many organisations can only make accurate affordability calculations if BNPL spending is understood. While the average BNPL user makes between two and three transactions a month, around a quarter of a million people make five or more, and a few make hundreds.

Depending on the commitment a consumer has to using BNPL to manage their financial life, this spending will matter when calculating what they can truly afford, and the new FCA Consumer Duty makes factoring in this spending potentially more important.

BNPL data can also help lenders accept more good customers without unreasonable risk. By building a record of responsible BNPL borrowing, thin-file and credit-invisible applicants can show their astute money management.

BNPL transaction data is now flowing to Experian and can provide firms with vital insight to inform their understanding of risk and financial well-being.

The BNPL landscape in 2023

BNPL transaction data went live with Experian in 2022, and key insights for lenders are already emerging from November and December 2022.

The volume of BNPL transactions continues to grow fast

In the run-up to Christmas 2022, the use of most credit products was below typical levels. But the demand for BNPL was 33% higher in November and December 2022 than in the same period the year before. These months saw the most significant number of BNPL transactions on record. In December, there were 2.2m BNPL customers and nearly 6m transactions.

We saw a big seasonal spike in BNPL use

Compared with the average volume of BNPL transactions for the six preceding months, transaction volumes in November and December 2022 were up 73%.

BNPL is going mainstream:

Who’s using BNPL? As this form of credit emerged, many assumed that the key users were young consumers with little or no credit record. We can now see that older, more affluent and lower-risk customers are the fastest-growing group of BNPL applicants. The most significant growth in BNPL use during November and December came from people in the 45 – 54 and 55 – 64 age groups, who made 123% more BNPL applications than was the average for the previous six months.

:but the popular image of a BNPL user is not wholly wrong

The age group using BNPL most heavily is still 25-34-year-olds, with more than 500,000 BNPL applicants in this bracket in November and December. And the riskiest borrowers remain the most frequent users of BNPL, with the highest credit-risk group accounting for more than 300,000 applications, almost twice the figure for any other risk group.

Many consumers are using BNPL for only a single transaction a month, but some are using it more frequently

The average BNPL user made 2.6 transactions in December, while almost half of the applicants made just one. On the other hand, 250,000 people made five or more transactions and 30,000 made more than ten. A tiny minority reached three figures in their monthly usage. The highest credit risk consumers tended to make the most BNPL transactions.

How much are consumers spending with BNPL?

While the value of BNPL transactions ranged from around £10 to £3,000, the average in November and December was worth £68. On average, a BNPL customer ends the month with £138 in BNPL balances to pay off. BNPL spending is not always trivial, either in absolute terms or relative to a consumer’s income.