Buy now, pay an arm and a leg later

According to Forbes, Coventry is one of the top British hotspots for Buy Now, Pay Later (BNPL), coming second behind Oxford, with an average monthly spend of £293.29. So what is BNPL? Why is it so popular, and is it something to fear? 

BNPL is a short-term, unsecured credit financing method whereby consumers can break down the full price of an item and spread payments over a series of (usually interest-free) instalments. The London School of Economics describes it as a point-of-sale loan. 

It has found great popularity among young consumers, with nearly 2 in 5 classified as Gen Z having used BNPL in the last year.  However, this isn’t only a Gen Z trend; according to Citizens Advice, around 56% of parents with primary school-aged children are using BNPL during the festive period, compared to 25% of UK adults overall. 

On 20 March 2025, Klarna and Doordash announced a partnership offering flexible payment systems for the food delivery market in the form of BNPL. This was met with online ridicule, in the form of memes mocking the idea of crashing the economy by defaulting on burrito loans. The underlying sentiment mirrors the eerie lessons of the American mortgage crisis, which led to the 2008 Great Recession; the rise of the BNPL industry echoes fears of the past. BNPL is not unfamiliar to consumers in the United Kingdom and has been soaring in popularity recently, especially among younger people; in 2023, British adults spent £16.8 billion through BNPL services. 

BNPL’s low barriers to entry, affordability, and zero-interest function mean that it is no surprise that the financing method has taken off among groups that feel less wealthy than their predecessors. This trend promotes inclusion by offering financial services to under-served demographics.  

As with traditional credit, BNPL allows merchants to expand their consumer base by offering greater flexibility. According to Grant Thornton, BNPL’s popularity is linked to the UK’s increasing cost of living and inflation. In the UK, inflation reached a peak of 9.6% in October 2022 before easing to 3.5% by December 2024. 

The FCA found that 19% of BNPL users are unaware of late fees, leaving vulnerable families at risk of debt traps

But flexibility comes at a cost. Merchants face higher risks due to BNPL’s elevated delinquency rates, with 22% of users having missed one or two repayments in the six months leading up to December 2023. For comparison, the FCA claims that the number of adults with missed credit commitments sat at 11% in January 2023. 

Widespread financial misinformation exacerbates the issue, which can be pushed through misleading marketing. Furthermore, nearly half of BNPL users are unaware of late fees, leaving vulnerable families at risk of debt traps. 

High household debt is usually expected to boost economic growth and reduce unemployment, as more money circulates in the economy. Nevertheless, if BNPL continues to grow in popularity while users make poor financial decisions, this could lead to unsustainable consumer debt levels as consumers overextend themselves and risk default. The effects are unlikely to be contained within the financial sector but will ripple throughout the economy, like the subprime mortgage crisis of 2008. 

Competition between fintech and traditional banks also continues to intensify, with Forbes labelling the BNPL market a battleground. According to Iana Vidal, Director of Public Policy and Regulatory Affairs at Clearpay, the BNPL market is expected to make up 10% of all e-commerce payments. Additionally, according to Creditspring, 29% of people use BNPL at least once a month and 16% of 18–34-year-olds are unable to meet payments. 

The behaviours tracked with BNPL allude to increased cost of living as adults need to use credit to cover bills and basic goods

The dual pressure of the cost-of-living crisis and poor medium-term outlook for the British and global economy has encouraged merchants to offer flexible financing methods to remain competitive. The behaviours tracked with BNPL indicate an increased cost of living, as adults need to use credit to cover bills and basic goods. 

BNPL improves credit access by extending finance methods to underrepresented and under-served consumers, leading to promotion of financial inclusion and boosting economic activity within the UK. According to CEPR, a strong BNPL repayment record correlates with an increase of 30 percentage points in loan approval – demonstrating the different ways BNPL promotes financial inclusivity. 

“BNPL is here to stay” predicts Ed deHaan, a professor of accounting at Stanford Graduate School of Business. 

Since 2021, there have been calls to regulate BNPL; the call was eventually answered in October 2024. HM Treasury announced that BNPL would come under the supervision of the FCA and apply the Consumer Credit Act, thus ensuring that users have clear information, avoid unaffordable borrowing, and have strong consumer protections when needed. The Treasury stressed that regulation is urgent and must be proportionate in order to allow continued access and choice. 

One of the biggest concerns raised relates to rampant misinformation, as Laura Howard from Forbes stresses that regulators heavily criticised the BNPL marketing as irresponsible. Overall, BNPL leads to increased sales through overspending and targets uninformed and vulnerable demographics, leading to financial instability and higher debt.