The cost-of-living crisis in the United Kingdom—driven by global inflation, supply chain interruptions, and the lingering effects of the COVID-19 pandemic—is revealing itself in another financial metric: widening use of buy now, pay later (BNPL) payment products.
As reported by This Is Money, more than a third of workers in the UK have used the loans. The number—38%—is based on a survey of more than 3,000 workers by professional services firm Barnett Waddingham. Another 15% of those surveyed said they plan to use BNPL in the future.
The rising use of BNPL, along with more traditional means of dealing with rising expenses, such as credit cards and loans, underscores a slippery downside to this type of payment method:
Many of the people who use them are in precarious financial situations.
The Crisis Toll, by the Numbers
Indeed, 30% of the respondents to the Barnett Waddingham survey said they had increased their use of credit cards amid the crisis.
- 17% had taken out a bank loan.
- 12% had sought out payday loans, which prey on vulnerable customers who cannot access other options, thus creating a cycle of debt.
- 12% had started using the services of a food bank.
- 16% were considering cashing in investments or drawing down their pension.
“If nothing changes soon, our data shows a growing number of employees will be turning to debt—if they haven’t already,” said Julia Turney, a Partner for Platform and Benefits at Barnett Waddingham.
Wide-Ranging Economic Insecurity in the UK
Statista dug into the numbers behind the UK cost-of-living crisis in a post earlier this month:
As of January 2023, 92% of households had experienced a cost-of-living increase compared with the previous year. In a slight bit of good news, 67% of households said the increases had come monthly, but that was down from 91% the previous summer. Food, electricity, and fuel costs are largely driving the effect, and not surprisingly, the poor are taking the brunt of the increases, as a disproportionate amount of their income goes to food and housing.
It all adds up to the biggest drop in living standards since the mid-1950s, Statista noted. Taking on buy now, pay later loans is a way of coping.
“The UK is far more advanced in these financial solutions than we are,” said Babs Ryan, the Lead Analyst for Digital Lending at Javelin Strategy & Research, who has extensive experience in the UK market. “Buy now, pay later is old news there, as is rent-to-own.”
The housing problem, she said, is particularly acute, locking swaths of the populace out of the market and sending young people scurrying for other options. Her recent report Mortgage Pandemic or Just the Sniffles: Fast-Track Cures and Long-Haul Boosters examined how these housing trends are beginning to play out in the United States.
BNPL Murkiness in the States
By its nature, BNPL is a compelling payment option that reverses the old layaway system: Instead of accumulating dollars for a set-aside item that purchasers can take home once the price is met, they get the item now for the promise of payments made later.
“On the other hand,” said Daniel Keyes, Senior Analyst of Merchant Services for Javelin Strategy & Research, “BNPL can lead consumers to spend beyond their means and rack up late fees or interest depending on the provider, potentially damaging their financial standing if they’re not careful.”
Keyes’ report, Buy Now, Pay Later’s Suddenly Uncertain Future, lays out some of the changes that may be coming, including greater regulation from the Consumer Financial Protection Bureau on such things as how BNPL could affect credit scores, limiting the ability of the method to rack up consumer debt, and changes to how late fees are assessed.