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Young women shopping for clothes and footwear are fuelling a boom in ‘buy now, pay later’ (BNPL) borrowing, according to a government review.
The Woolard Review into the unsecured credit market, published on Tuesday, highlighted concerns over consumer debt as such borrowing has soared during the pandemic.
Use of BNPL arrangements, offered by retailers at the checkout online and spreading out payments into future intalments, quadrupled in 2020, according to the review.
There has been a particularly “strong uptake” among online fashion retailers of such arrangements. Popular providers include Sweden’s Klarna and ClearPay, both of which work with brands like Asos (ASC.L) and Boohoo (BOO.L), and Australia’s Afterpay.
Data provided by providers suggests 75% of users are female, and 90% of all transactions involve fashion or footwear. Half of users are aged 25 to 36, and another quarter under 24.
While BNPL arrangements are typically free if payments are made on time, critics argue they risk encouraging excessive borrowing and storing up debt problems for the future. Not all consumers are aware they are borrowing at all.
The review noted one in ten users of BNPL services were already in arrears with their banks, so should not be allowed to access new credit at all.
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Christopher Woolard, former interim chief executive of the Financial Conduct Authority and chair of the review, warned changes were “urgently” needed to regulate the sector.
The government immediately pledged to hand the FCA watchdog new powers. As BNPL providers typically don’t charge interest, they are not covered by existing credit regulation.
“The trend of younger people moving away from products such as credit cards and towards new offerings, including unregulated BNPL products was regularly raised by respondents to the review. Women are also more likely to be making use of these products than men, in part due to their strong uptake in the online fashion sector,” it said.
The review also said women were already more likely to use retail finance such as store cards and catalogue credit, while men were more likely to use car finance and personal loans.
More than 5 million people have used BNPL plans since the COVID-19 pandemic began and the market is now worth £2.7bn ($3.7bn).
“I am not overly surprised to learn that women represent a significant part of the 'buy now, pay later' market,” said Olga Miller, co-founder of online money coaching platform SmartPurse.
“Managing money is often a pain point for women with many being time-poor. These types of products and services succeed partly because women don’t have the luxury to spend hours researching through the information that isn’t readily understandable or tailored to their own personal and unique situations.”