The risks of buying now and paying later

The Financial Conduct Authority is calling for tighter regulation of the fast growing buy-now-pay-later industry. BNPL allows consumers to get a product they want before they pay. The cost is then paid off in installments over time. The main players are Klarna, ClearPay, LayBuy and Afterpay. The oldest, Klarna, pioneered the online payment method and was founded in Sweden by Sebastian Siemiatkowski, Niklas Adalberth and Victor Jacobsson in 2005. The UK BNPL market is worth £2.7bn and quadrupled in size in 2020. Younger consumers in particular have turned to this seemingly more affordable alternative to higher interest credit cards, according to FT Partners. An estimated 14 million people used BNPL in the UK last year. 39% did so without realising and 42% didn’t fully understand what they were signing up for, according to Citizens Advice. The risks associated with BNPL include fees and interest on late payments, which could push people into debt. 41% of users have struggled with payments over the last 12 months. Labour’s Stella Creasy has said BNPL is a “financial scandal waiting to happen”, comparing the new industry to payday loans. Buy now pay later companies argue they are offering people a more responsible and affordable alternative to high cost loans and credit cards.