Buy now, pay later (BNPL) has had a dramatic impact since arriving in this country in 2014. The sector is worth £28bn, with 23 million people using it, according to The Payments Association.
With growth has come criticism, in particular that BNPL encourages people into unmanageable debt, both because of the lack of affordability checks and the inherently inflexible structure of their loans, and that BNPLs don’t properly explain to shoppers that they are entering into a credit agreement.
Those criticisms have led to regulation. On 15 July, new Financial Conduct Authority (FCA) rules will, among other things, mean that BNPLs will now be mandated to run affordability checks for borrowers.
It is expected that those changes will mean that between 10% and 30% of current BNPL users, ie several millions of people, will no longer be able to use it.
The government’s Money and Pensions Service said in 2023 that 11% of BNPL customers used it to buy groceries – and it’s worth noting that in the US, which is an even more mature BNPL market, the tough consumer economy means that figure has doubled since 2023 to 29%.
On top of groceries, nearly half of customers use BNPL for clothing & shoes and electronics. A significant proportion also use it for other household goods, health & beauty, toiletries & hygiene and gifts – all items grocers sell alongside their food and drink staples.
At Fair for You, we agree with the spirit of the FCA’s rules. We don’t want people getting into unaffordable debt.
Like it or not, BNPL for essentials is simply unavoidable for many low-income households who need to smooth out their income. Millions of Brits have zero savings (estimates vary, but the FCA’s 10% figure is at the lower end). Such customers with zero or low savings, or poor credit scores, are more likely to be denied BNPL under the new rules, as commercial lenders focus on more easily served audiences.
What new BNPL rules mean
The unfortunate reality is that regulation will take BNPL away from some customers who relied on it. This impacts retailers’ takings, but also their reputation.
Even though it is a BNPL provider that turns down a customer for credit, a customer often won’t see the distinction. Plenty of people come to us after a rejection elsewhere with negative feelings, which can be long-lasting, towards the retailer they believe turned them down.
The Grocer has already explained some of the compliance implications for the sector. But how do you respond to the commercial ones?
Talking to responsible finance providers who, like Fair for You, have specific experience working with lower-income, financially excluded customers, is an option.
Asking BNPL partners for information about who they are now declining will help you build a picture of the new laws’ impact.
You could also ask them what they give rejected customers? Signposting to food banks? Genuinely clear explanation of why they were rejected? Useful information could help keep the customer happy and more likely to shop with you in future, when finances allow.
I’ve worked closely with the retail sector for years on schemes including our Iceland Food Club partnership. Knowing how hard this sector works to support communities across the UK, I’m sure many of you are already thinking about how finance options, customer journeys, loyalty schemes and other processes could be adapted to allow you to remain relevant to BNPL-rejected customers.
Chris Bennett is chief commercial officer at Fair for You
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