BNPL growth dwarfs all other consumer credit products

Shoppers are turning to BNPL as the cost-of-living crisis bites, prompting fresh concern from the regulator.

Growth in consumer credit is rapidly being outstripped by the boom in popularity for buy-now-pay-later lending products among consumers, according to digital lending marketplace, Freedom Finance.

Consumer price inflation has correlated with an increase in net credit card borrowing of 11.6 per cent in the 12 months to April 2022, according to Bank of England data.

Consumer credit, including personal loans and finance on items such as cars, has also seen a 5.6 per cent increase in the same period, indicating spiking demand for lending products amid the cost-of-living crisis.

Freedom Finance says that BNPL is the first wave of growth of an emerging embedded finance sector reacting to consumer demand for online integration of financial services.

While BNPL remains a small proportion of the total £200bn outstanding consumer credit in the UK, its increasing prevalence and use have caused concern among industry participants and the regulator, according to Freedom Finance.  

“There is a clear behavioural shift being driven by the growth in online shopping and increasing trust in digital lending,” said Michael Davidson, chief revenue officer at Freedom Finance. “That is why the industry and regulator are reacting to the rise in this type of lending as consumer demand accelerates innovation in the embedded finance sector.”

“There is a danger that the focus of BNPL as part of the recent embedded finance movement combined with a cost-of-living squeeze could leave other viable credit options in the shadows. Product choice in this space is essential to ensure that customers get the right credit for their needs rather than the quickest, easiest option that may not necessarily be the best.”

Despite concerns around the current lack of regulatory oversight over the sector – something which the FCA is addressing in an ongoing consultation – industry sources estimate that BNPL lending is likely to increase a further 52 per cent in 2022, to well over £20bn.