With more than 14 million people in the UK using buy now pay later (BNPL), TotallyMoney investigates the different payment structures, and asks if complexity and a lack of consistency and regulation are leading to millions of people struggling to manage payments:

• The average customer makes 4 BNPL transactions per month — resulting in 12 separate payments for the typical ‘pay in three’ plan

• With payment structures varying between providers, a customer could see the same 4 purchases could generate up to 24 separate payments with another leading BNPL firm, meaning that 52 purchases could generate 312 payments in just 12 months

• A third (34.2%) of BNPL customers have difficulty in keeping track of their payments, and a quarter (25.2%) lack confidence in their understanding of BNPL§ 

• 22% of BNPL users missed a payment and incurred fees over a six month period

Continuing below, we’ve analysed payment structures for five of the UK’s biggest BNPL providers, with commentary from TotallyMoney CEO, Alastair Douglas.
 

Buying is easy, but a third struggling to track payments§
Most BNPL providers offer interest-free, instalment-based payment plans for purchases on checkout when shopping online, while promising websites and vendors increased sales. A leading BNPL provider, advertises that customers who use Klarna purchase 45% more compared to the average shopper, and have 22% more items in their basket when checking out#. The payment structures vary depending on providerΔ:

•  Klarna: three payments, over two months (18 million users)
•  PayPal: three payments over two months (4.4 million users)
•  Zilch: every two weeks, over six weeks (3 million users)
•  Clearpay: four payments over six weeks (2 million users)
•  Laybuy: six payments over five weeks (500k users)

A YouGov survey, commissioned by TotallyMoney found that a third (34.2%) of BNPL customers had difficulty in keeping track of their payments, and a quarter (25.2%) lacked confidence in their understanding of buy now pay later.

Taking the average of 4 purchases per month (one per week), the tables below look at how payments accumulate over weeks, months, and years, depending on the structure of the agreement provided by five of the UK’s largest BNPL lenders.

Based on making one purchase per week, after nine weeks, customers using Klarna and PayPal will see three payments leave their accounts each week, while Zilch and Clearpay users will see four, and Laybuy customers six.

In the third month, Klarna and PayPal users making one purchase per week will need to manage 12 payments every month, Zilch and Clearpay 16, and Laybuy 24.

When looking at this over the course of one purchase per week over the course of a year, Klarna and PayPal users will make 156 payments, Zilch and Clearpay 208, while Laybuy customers will see 312 separate payments leave their account. 

It’s estimated that 3.1 million households (11%) have outstanding BNPL debts, with a mean balance of £866 — a total of £2.7 billion. 

Missed payments might not only leave a mark on an individual’s credit file, but can also result in fees charged by BNPL lenders for late payment, and people in persistent arrears may be referred to debt collectors. StepChange estimates that one in 10 BNPL borrowers are referred to debt collection agencies.

 Alastair Douglas, CEO of TotallyMoney comments:
“In recent years, people's finances have been put under huge amounts of pressure, meaning they’ve had to cut back on spending, dip into savings, or turn to credit to make ends meet. And with traditional providers tightening their lending, or pulling out of the market altogether, buy now pay later has, for many, helped plug the gap.

“Offering interest-free payment plans, split over a set period of weeks or months, BNPL lets customers spread the cost of a purchase without needing to pass any affordability or credit checks. And although BNPL won’t help a customer grow their credit score, missed payments can show up on credit files, impacting people's ability to borrow in future.

“But as BNPL is designed to encourage customers to spend more, does it promote responsible use? Or, does splitting payments over a few weeks offer fair value to the 8 in 10 people being paid monthly? Managing debt repayments can be stressful enough, and it’s clear that regularly using BNPL can lead to dozens of transactions every month, making it even harder to manage. And one in three people struggle to keep track of their payments.

“BNPL users are more likely to be younger, renting, and on lower incomes, with reduced financial resilience, and making them more likely to be financially vulnerable. The government has dragged its heels on buy now pay later, having announced its intention to regulate the sector more than three years ago. But as we wait for action, perhaps they just see it as a job for after the next election, or party.”