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One in eight resorted to buy now, pay later credit as cost of living bites

Buy now, pay later Members of the public pass by a floor advertisement for tech firm Klarna, a European ecommerce company which allows users to buy now, pay later, or pay in instalments, as the company's valuation fell from $46 billion to $6.7 billion in its latest round of investor fundraising, on 14th July, 2022 in Manchester, United Kingdom. (photo by Daniel Harvey Gonzalez/In Pictures via Getty Images)
Buy now, pay later firms allow customers to pay in instalments. Photo:Daniel Harvey Gonzalez/In Pictures via Getty (Daniel Harvey Gonzalez via Getty Images)

One in every eight (12%) people in the UK used Buy Now Pay Later (BNPL) last year as the cost of living crisis pushes more Britons to resort to credit, new data has found.

The age group that made most use of these services was 35- to 44-year-olds, with one in five Brits in this age group using BNPL services during 2021, according to the latest figures from UK Finance.

In contrast, just 4% of people aged 65 or over used these services in 2021.

However, the temporary solution risks becoming a permanent problem as inflation continues to squeeze UK households.

Almost a third of shoppers who use BNPL credit said repayments on the loans have become “unmanageable”, with the cost of living crisis pushing them into a debt spiral.

Consumers are spending more via this form of credit, with shoppers who use BNPL now paying off an average of 4.8 purchases — almost double the average of 2.6 purchases in February, the research found.

The average BNPL user’s outstanding balance currently stands at £254, according to research from Barclays Bank (BARC.L) and the debt charity StepChange.

Read more: Klarna and your credit report: how buy now pay later will impact your rating

The rising cost of living is having a direct impact on the popularity of BNPL purchases, with 36% of consumers saying the lending — much of which is still unregulated — has become more appealing since inflation began to climb.

Despite the rise of BNPL services, debit cars remained the most used payment method in 2021, accounting for 48% if all payments.

UK Finance figures show that 40.4 billion payments were made in 2021, a return to pre-pandemic levels.

Contactless payment also continued to grow in popularity. Almost a third of all payments in the UK were made via contactless methods in 2021, up 36% compared with 2020.

Retailers encouraged the use of contactless during the pandemic as a way of helping to facilitate social distancing in shops.

“Payment trends generally tend to change slowly, as we all form habits about the way we pay for things and these don’t change easily. However, the pandemic accelerated the pace of change in 2020, in particular the reduction in the number of cash payments,” Adrian Buckle, head of research at UK Finance, said.

The number of cash payments decreased by 1.7% to 6 billion, although it remained the second most commonly used payment method, accounting for 15% of all payments made in the UK last year.

Read more: Buy now, pay later firm Klarna launches payment card in the UK

During 2021 there were 23.1 million consumers who used cash only once a month or not at all, a significant increase from 13.7 million consumers the previous year. At the same time, there were 1.1 million consumers who mainly used cash when doing their day-to-day shopping.

“In 2021 we saw the total number of payments return to pre-pandemic levels and a return towards the long-run trends in payment method usage. Contactless continued to be popular, accounting for almost a third of all payments. Cash usage fell slightly, although remained the second most commonly used payment method. These are trends we expect to continue over the next decade, alongside a continued decline in cheque use, and an increase in the number of people using remote banking,” Buckle added.

Watch: The risks of buying now and paying later