What’s the perception of Buy Now Pay Later – and how do we change it?
Humans love the familiar. It keeps us safe. It’s low energy and effort. It feels good.
New innovations often face criticism because they fly in the face of this easy familiarity. Early reactions to credit cards revealed concerns about efficiency and safety – things we now know, they actually facilitate. Because, the irony is, perceived risk can transform into reward, if only we had the energy and inclination to let it.
Buy Now Pay Later (BNPL) is consumers’ latest financial risk-reward conundrum. Although the idea of splitting payments into manageable pieces has been around in different guises for centuries, its latest digital iteration is unfamiliar and exciting in equal measure.
On the one hand, it can help split purchases and is easy to apply for. On the other, it’s new, unusual and accompanied by press horror stories.??
We conducted research across 2000 people in the UK to uncover their perceptions of BNPL – and understand what the industry needs to do to tip the balance from perceived risk into untold opportunity.
What is BNPL?
There are different types of BNPL available in the market – some regulated and some not. When we talk about BNPL in this article, we mean an unregulated, short-term, interest-free credit agreement, that allows the borrower to buy something immediately, then pay it back across a series of weekly or monthly instalments.
Who is using BNPL, and why?
Over one quarter (26%) of Brits have used BNPL services and our research revealed that the quintessential BNPL customer is more likely to be:
40% of 18-35s have used BNPL, compared to only 11% of 55+ year olds
70% of those who’ve used BNPL say they would do so again
69% of repeat users believe BNPL is useful as a budgeting tool
Who isn’t using BNPL, and why?
Almost 3/4 of UK adults haven’t used BNPL, and 58% say they have no desire to try it. Our research revealed that these people are more likely to:
51% and 40% of people who wouldn’t use BNPL, respectively, highlighted these hurdles
Over half (52%) of those who wouldn’t use BNPL say they see no benefits to the service. They also consider the barriers to BNPL – like missing payments, lack of regulation and fear of debt – to be more significant than those who would consider using the service.
How do we evolve BNPL to make it more attractive?
BNPL solves an age-old customer need. By spreading the cost of an item, it helps people manage their budgets and make purchases they otherwise could not. And yet our research shows there is work to do to make the product more appealing. We believe that these actions will be key:
1. Work to build trust
Negative media coverage, lack of regulation and sometimes questionable practices by a few providers have tainted the industry’s image. As a result, only 16% of people surveyed believe that BNPL can be trusted. It is seen as less trustworthy than credit cards, overdraft agreements, personal loans, store cards and finance agreements. It is only seen as more trustworthy than digital credit and payday loans.
Interestingly, just under half our respondents (47%) believe that the BNPL provider is ultimately responsible for the service, with just over a third believing responsibility lies with the retailers themselves – a large degree of ambiguity. This suggests two things; certainly, that the BNPL providers must do more to demonstrate responsibility, but in addition that the retailer holds a degree of responsibility (in the customer’s eyes at least) so it should be discerning around the BNPL providers it works with and which (or how many) BNPL options it offers. The goal is, of course, to deepen customer relationships, not jeopardise them.
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To that end, regulation has a crucial role to play as it protects customers and holds credit providers to a responsible standard. Certain BNPL products currently rely on an exemption from the Financial Services & Markets Act, making them largely unregulated. Earlier in 2023, the government announced its intention to introduce legislation which would bring unregulated products, such as BNPL, within the FCA’s regulatory perimeter.
Whilst the government maintains it intends to introduce this legislation, it has recently been reported that these plans have been postponed, possibly to align the timing of any changes with an upcoming review of the Consumer Credit Act. With a reducing window in the Parliamentary timetable before the next General election, the immediate prospects are uncertain. However, with the Labour Party committing to regulate BNPL as a manifesto priority, it is unlikely to fall off the regulatory agenda, which in the eyes of many is long-overdue and will help improve perception, reliability and customer trust.
2. Bring clarity around the service
Misconceptions abound. Of those surveyed, over 1/3 of people do not realise BNPL is a form of credit, while almost half believe that BNPL does not impact credit score.
Younger people in particular have less awareness of BNPL as a form of credit and subsequently less awareness of the impact BNPL services can have on credit scores. The answer could lie in less trivialisation of BNPL, being clearer that it is a form of credit and focusing on financial education throughout the customer journey, while making sure to communicate financial information clearly by following Plain Numbers guidelines, for example.
3. Emphasise choice and control
One of the biggest drawbacks of BNPL is lack of flexibility. Low spending capacity and short repayment terms prohibit larger purchases and reduce use cases for the product.
Our research shows that preferred repayment length increases with size of purchase. For example, for a ￡100 purchase, three-quarters of people are happy to repay over 3 months but when the value increases to ￡1,000 more than half want from 6 to 12 months. Not surprising perhaps, but since most BNPL products, partially to remain within the regulatory exemption explained above, typically only offer short repayment terms, it does reinforce that solutions offering flexibility in repayment length will win not only existing customers, but eventually new customers too.
4. Create one-stop shop solutions
There’s a clear preference amongst Brits for a united BNPL service that can be used multiple times from one application. 69% of people would prefer to use one service that keeps track of multiple purchases. And, when asked about barriers to using BNPL, 32% said they didn’t want to track multiple BNPL payments.
Across the research, the need for an all-in solution, which consolidates payments, offers different repayment terms and can be used again and again across retailers, is a clear driver of great customer experience and will likely influence both uptake and repeat usage.
5. Get people over the first-use hurdle
Negative perception of and limitations to BNPL may prevent first use. But once overcome, research shows that people are more likely to use the service again and again. 70% of Brits who’ve used BNPL say they would do so in future, whilst 58% of those who have never used it say they wouldn’t consider doing so.
To create broader appeal and get people over the ‘first-use hurdle’, BNPL must evolve to become more inclusive – or conversely, remove reasons not to give it a go. Alleviating inherent limitations such as accommodating larger basket sizes through longer repayment durations, or enabling multiple purchases through an on-going credit account, would remove some of these barriers.
However, developing today’s offering to offer greater utility would, depending on the features added, requires embracing regulation – not a path well-trodden, although regulation would contribute to addressing reputational concerns, making BNPL more appealing. Our research found that 78% of Brits prefer a regulated BNPL product, even at the expense of a longer application process.
Whilst not the silver bullet, these steps would contribute to providing customers with the flexibility and reassurance they need to use the product for the first time, and as we’ve seen, repeat use takes care of itself.
6. Highlight benefits, educate on barriers
Worryingly, 37% of people believe there are no benefits to BNPL products.
Education remains paramount. Associating BNPL with ease, flexibility and access can help people realise its many benefits, whilst cultivating financial savviness around interest, credit scores and regulation will help customers understand the pitfalls – and how to avoid them. As understanding increases, we can reasonably assume that uptake will increase too.
So, where do we go next?
BNPL will continue to evolve, as it always has. But for retailers and providers looking to stay ahead of the curve, BNPL products that prioritise flexibility, trust and unity have the power to win the market.
Just as credit cards were initially met with scepticism and even fear, BNPL will need to face its challengers head on and adapt to what people need. In a way BNPL is a victim of its own success. By limiting its product offering to short-term, interest-free ‘micro-loans’ it has avoided the scope of consumer credit regulation and made it very easy for merchants to get involved. But to deliver the product enhancements and reputational upgrades required to expand its audience – more flexibility, extended spending capacity and increased trust – BNPL needs to embrace what it really is: a form of credit. An exciting and innovative form of credit, but credit nonetheless.
We believe this acceptance, along with appropriate regulation to unlock greater product utility, is the key to mass adoption.
To find out more about NewDay, please contact:
Dominic Hanson, Head of Business Development
Anthony Timbrell, Senior Manager, Business Development
Reece Moore, Senior Manager, Business Development
Paul Green , Senior Manager, Business Development