The buy now pay later industry needs to do more to support users of its services who get into financial difficulty and change its inflexible approach to negotiating repayment terms, a new report argues.
Not-for-profit debt management organisation Way Forward surveyed its clients, who are all people in long-term financial difficulty and on debt repayment plans, and found that 63 per cent have used BNPL as a last resort.
Eighty per cent used at least one BNPL arrangement in the past 12 months and the majority have used two or more providers.
Most of these people had positive responses to BNPL, saying they would rather use it than a credit card, but a significant number (42 per cent) said using BNPL might make them more vulnerable to further difficulty.
Close to one-third of clients (31 per cent) said they have taken on BNPL debt “on a whim” and later regretted it.
Twenty-five per cent said they used it to “manage debts” – using BNPL to pay for essentials while their wages go to debt repayments.
In a report of the survey results, Balancing Act, Way Forward said: “Although BNPL is a fraction of the debt managed by Way Forward, the interplay between BNPL debts and other forms of personal credit requires further investigation.
“Interest may not be charged for BNPL facilities but the short-term impact of the larger instalment can significantly impact the budget of an individual experiencing financial difficulty.
“Given the ease of obtaining multiple BNPL arrangements for someone experiencing financial difficulty, the use of BNPL as a short-term solution to a longer-term problem is a concern.”
Among new Way Forward clients in the past financial year, 2 per cent of their debt was BNPL debt – up from zero four years ago.
The report said one issue with BNPL providers is that there is very little flexibility to negotiate repayment terms, with few providers offering options to reduce the repayment amount.
“Our observation in these circumstances is that the client prioritises BNPL debt over other creditors until the BNPL debt is repaid, which, given the higher repayment amount, places pressure on an already stretched budget.”
It recommends that clients close all BNPL accounts before setting up a repayment plan.
Way Forward called on BNPL providers to recognise that debt in all its forms has the potential to increase stress and poor mental health among financially vulnerable people.
It said BNPL providers need to ensure their support services are resourced to recognise indicators of financial vulnerability and debt stress, and provide support.
It wants the industry to educate users on “the pitfalls of using BNPL facilities when experiencing financial difficulty.”