Over recent years, more than 26.4 million of us have turned to ‘buy now pay later’ (BNPL) services to help us pay for both essentials and treats by spreading payments over a number of months.
Research from last Christmas shows that one in four of us used BNPL services to help us through the festive season – and amongst parents of primary-school kids, this figure rises to more than half!
Almost a third of people who use BNPL at Christmas say they would struggle financially during the festivities if they couldn’t access the service. This is reflected in the fact that, last year, average monthly repayments peaked at more than £170 per person in December.
But with the market for BNPL services predicted to rise to £30 billion as we near the Christmas period, just what is it about this form of finance that is so appealing to today’s online customer? The commercial finance experts at Anglo-Scottish Finance reveal seven reasons why BNPL payment options are gaining such popularity, particularly among younger generations.
1. Buy more, buy now
Simply put, BNPL services are allowing us to fulfil our shopping desires quickly and easily. Who wouldn’t love a solution that allows you to buy more of the things you love and start enjoying them straight away, rather than having to save up a bulk payment?
Similar to modern commercial finance – which can also now be secured via a range of funders and personalised lending solutions – BNPL systems work much like hire purchases (HP), a form of asset finance. HP agreements are commonly used by businesses to spread the cost of expensive assets like cars or machinery over a pre-approved period, while BNPL extends this same opportunity to individuals.
Collectively, UK online shoppers spend a staggering £1.7 billion in a single month thanks to BNPL platforms, like Klarna, Clearpay and PayPal Credit. And the trend isn’t just confined to our digital shopping baskets. It’s estimated that, in 2023 alone, another £9 billion was spent in-person, with a number of brands accepting BNPL payment options in store.
As long as you’re sure you can afford the monthly repayments, there’s nothing to stop you from buying more now and enjoying some instant gratification.
2. The cost-of-living crisis
Thanks to the ongoing cost-of-living crisis, the majority of us have less money available from month-to-month. BNPL services allow us to buy what we need – or indulge in a little treat – despite rising costs.
Recent research reveals that one in five of us cover essential spending with the help of BNPL services. For instance, if rising bills mean you can’t afford to pay for your usual food shop upfront, a BNPL platform can give you a reprieve until payday.
The BNPL approach is also great for unexpected costs – your car breaking down or the need for house repairs – that you haven’t budgeted for. Spreading the cost allows you to fix these issues immediately, rather than having to put up with them for another month or two. Just remember: only commit if you know you can cover the future repayments.
3. Financial wellness
Spreading out your payments while enjoying the benefits straight away is a simple way to exercise your own financial power over the market. You have the ability to pay for what you need (or want) in a way that works for you.
The necessity of keeping up with regular payments also reinforces positive money lending and repayment skills, encouraging healthy financial awareness. This can help create a situation of financial wellness, where you are confident enough with money to manage all your expenses, afford treats and plan for long-term financial goals.
These kinds of skills are invaluable and, with more than half of BNPL users aged under 35, can instil a lifelong commitment to making money work for you.
4. The normality of debt
It’s now more socially acceptable than ever to carry some form of debt. In fact, as of July this year, the average UK household was over £65,500 in debt, with the typical UK adult dealing with more than £4,200 worth of unsecured debt.
Whether it’s due to student debt, personal loans or credit card debt, the majority of us have some form of repayments due. Therefore, accruing another small monthly repayment thanks to the use of a BNPL service may not seem as unusual as it once did.
Plus, many BNPL platforms, such as Klarna, provide ‘no interest’ and ‘no credit check’ promises, meaning you don’t need to worry about previous debts and issues showing up when you attempt to use the service.
These services’ approach has helped cement their popularity. As long as you can afford to pay for the cost of the item that you’re buying in the agreed-upon time, there’s nothing stopping you – no hidden fees and no credit checks.
5. A positive company ethos
Another reason for the popularity of specific BNPL platforms, like Klarna, is their social awareness. Klarna actively uses its social influence to drive change, creating successful sustainability and gender equality initiatives.
With recent figures showing a huge 80% of us are either fairly or very concerned about climate change, and a 14.5% gender pay gap persisting in the UK, focusing in on these issues is a very savvy move from Klarna.
By using its influence to create real change, Klarna makes itself a more attractive company to do business with for a socially-aware audience. This approach also helps distinguish these companies as more modern and forward-thinking compared to traditional banks, which tend to have negative associations in the social mindset.
6. The social effect
Paying for a range of items across a number of months allows you to access items and experiences that would otherwise be out of your reach – a very attractive proposal that goes a long way in explaining the popularity of these services.
The ever-present popularity of platforms like TikTok and Instagram present us with a continuing cycle of seasonal trends, new products and ever-changing lifestyle goals to buy into. TikTok features almost 60,000 posts with the hashtag ‘#AutumnStyle’, while ‘#WinterStyle’ has been tagged in almost 77,000 posts. The simple hashtag ‘#NewTrend’ features almost 40 million posts on the app.
Similarly, Instagram features over 274,300 posts with the hashtag ‘#AutumnHair,’ over 33,600 posts related to the hashtag ‘#OctoberStyle’ and more than 13,200 posts with the hashtag ‘#NovemberStyle’.
These monthly trends are often gone in a flash! But BNPL services allow you to enjoy them at their height – plus, once you have finished with your trend-led items, you can always resell them on platforms like eBay or Vinted!
7. The Millennial/Gen Z approach
Although the older generations are catching up, those under 35 make up a large number of users on BNPL platforms. Millennials are the most frequent users of BNPL platform Clearpay, while 68% of Gen Z have used BNPL platforms at some point.
It’s been suggested that the BNPL trend might be so popular among the younger generations because, due to the economy, younger people struggle to aspire to the traditional milestones of adulthood. It’s no secret that previous markers of progress – such as owning a house or having children – are less accessible for today’s young people.
Therefore, Millennials and Gen Z are creating their own adulthood markers, gaining fulfilment and from smaller items, such as quality furniture, the latest tech or a holiday. BNPL platforms allow you to access these items immediately – in pleasing contrast to the now out-of-reach investments of previous generations.
So, there you have it, seven explanations as to the rising popularity of BNPL services. However, as Stuart Wilkie, Head of Commercial Finance at Anglo Scottish, warns, “Everyone should approach BNPL opportunities with caution. The service relies on fulfilled monthly repayments, so if you’re unsure whether you can keep up with the payments, you should always consider other options first.”
Indeed, more than half of those who used BNPL services last year were required to pay a late fee for failing to keep up with their monthly payments. Although the average late fee was only £23.50, this shows the potential for spiralling future costs.
“There is an inherent risk in buying beyond your means,” Wilkie continues. “Racking up monthly BNPL payments may leave you in an uncertain situation if you run into difficulties, such as redundancy or other cash flow issues.
“BNPL services are great options for smaller investments that you are sure you can ultimately pay back – but always remain sensible about the repayment schedule you agree to, use an authorised service and seek help if you need it.”
