Insights ¦ Flexing the Future

Key Take Aways

1. The market for Buy Now Pay Later (BNPL) has grown rapidly, with approximately 3 million UK households (11-12%) now owing money on Deferred Payment Credit (DPC) agreements, totalling an estimated £2.6 billion.

2. The average borrowing per household on BNPL has increased from £761 in 2023 to £874 in 2024, suggesting growing consumer engagement.

3. Most BNPL consumers borrow small amounts, with 66% borrowing £350 or less in 2023, though this share decreased to 57% in 2024.

4. BNPL usage is more prevalent among younger consumers, especially those aged 25-34, and is disproportionately high amongst households with dependent children.

5. A significant share of users and potential users show signs of financial distress or heightened vulnerability, particularly among low-income and subprime segments.

6. Regulatory exemption has enabled BNPL to grow outside traditional consumer credit regulation; upcoming legislation aims to bring it into FCA oversight by 2026.

7. Despite its growth, BNPL has not significantly impacted households’ debt-to-income ratios overall; 68% of households’ ratios change by 2% or less upon inclusion of BNPL debt.

8. There is a notable incidence of credit stacking, where consumers use credit cards to repay BNPL, which could inflate overall debt levels and mask true borrowing.

9. Approximately 26% of BNPL borrowers report using credit cards to repay DPC, heightening risks of overleveraging due to interest-bearing debt.

10. Consumers cite interest-free borrowing, ease of purchase, and budgeting as primary reasons for using BNPL, with broad satisfaction across demographic and credit status segments.

11. There are concerns that the gamification of credit via apps and ease of access increase the risk of unintentional overextension, especially among low-income consumers.

12. The article advocates for careful regulation, including tailored disclosure requirements, reform of the Consumer Credit Act, and more rigorous supervision to mitigate harm while preserving access.

Key Statistics

• 11-12% of UK households (around 3 million) used DPC in 2023-2024.

• Total aggregate household debt on BNPL is approximately £2.6 billion.

• Mean BNPL borrowing increased from £761 in 2023 to £874 in 2024.

• 66% of households borrowed £350 or less in 2023, falling to 57% in 2024.

• 18.73% of 25-34-year-olds use DPC, making it most common in this demographic.

• 26% of BNPL users borrowed money to make repayments, often via credit cards.

• 11% of consumers who borrowed on BNPL paid late fees, with 19% among those earning less than £15,000 annually.

• 48% of households with BNPL debt borrowed £250 or less; about 10% owe more than £2,000.

• 35% of DPC users in lowest income quintile have debt-to-income ratios over 40%.

• 43% of BNPL users in income quintile 1 are very concerned about their debt levels.

• Approximately 30% of BNPL households have cut back spending due to credit access fears.

• 77% of DPC users report having a positive experience with their provider.

Key Discussion Points

• The rapid expansion of BNPL market, driven by consumer demand for interest-free and flexible payments.

• The regulatory exemption currently allowing BNPL to operate outside FCA oversight, with upcoming legislation set to change this in 2026.

• The potential of BNPL to support financial inclusion, especially for consumers with low credit scores, but also the associated risks of over-indebtedness.

• Most households utilise small amounts of DPC, but high-borrowing households pose potential sustainability issues.

• The prevalence of credit stacking, where consumers use credit cards to manage BNPL debt, increases overall financial vulnerability.

• The role of consumer motivation, with interest-free features and ease of use being primary drivers.

• Concerns around limited consumer understanding of BNPL as a form of credit and the implications for responsible lending.

• The importance of tailored pre-disclosure requirements, especially considering the increase in app-based credit access.

• The need to reform the Consumer Credit Act to create a more consistent and modern regulatory framework.

• The importance of supporting consumers in managing credit risk, especially among vulnerable groups.

• The significance of a market study from the FCA to better understand market dynamics before regulation takes full effect.

• The relevance of corporate responsibility in refusing credit card payments for BNPL to prevent credit stacking and over-borrowing.

Document Description

This article examines the evolving landscape of Deferred Payment Credit—commonly known as Buy Now Pay Later—focusing on its rapid market growth, consumer demographics, motivations, and associated risks. It discusses the regulatory challenges posed by the product’s current exemption from FCA oversight, explores its potential to promote financial inclusion, and advocates for targeted policy measures. The piece offers a detailed analysis grounded in UK household surveys and polling data, presenting key recommendations for regulation, consumer protection, and market oversight to strike a sustainable balance between accessibility and risk mitigation in the UK credit market.