This article is provided by BRC Associate Member, Fair for You.
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Having only arrived in the UK in 2014, Buy Now Pay Later now accounts for 8% of all online and physical payments, according to UK Finance. It may have its flaws and its critics, but it’s been an undeniable success story.
Are you ready for the next chapter of that story?
Nobody really knows the full impact of the new Financial Conduct Authority (FCA) rules on BNPL, which come into force on 15 July.
But the shake-up should be prompting retailers to consider whether they offer the right flexibilities and payment options to ensure they serve as wide a customer base as possible.
Research by Fair4All Finance earlier this year shows that around one in four UK adults uses BNPL, and says it is “widely agreed” that the new regulations will result in up to 30% of users being declined access in future. That’s a lot of sales that retailers stand to lose if they can’t offer alternative payment methods at the point of purchase.
And crucially, those customers won’t simply stop needing washing machines and school shoes - and as those same UK Finance stats show, clothing and shoes, domestic electric equipment and non-electrical household goods are the three most common items bought with BNPL.
Many of those soon-to-be excluded customers are people on lower incomes or with limited or poor credit histories. Those are the very customers which other mainstream lenders tend to overlook, and who we at Fair for You were set up to serve.
Fair for You is an ethical lender working in partnership with retailers, and best known for our Iceland Food Club partnership with Iceland. We also work with a range of other retailers including Argos, Currys, Dunelm, Tapi Carpets and more.
We carry out careful affordability checks, but our purpose is to widen access to affordable credit responsibly rather than narrow it, offering structured, manageable repayments on exactly the kind of essential purchases BNPL is most used for. Since 2015, we’ve helped more than 100,000 customers to get in control of their finances, improve their health, and generated an estimated £750m in social value across the UK.
Good idea, but what will it mean?
As a company, we very much agree with the spirit of the rules. They have been created to put in vital protections for consumers, ensuring fewer fall into problem debt by instituting affordability checks and consistent standards.
Many of Fair for You’s customers love BNPL, and use it alongside Fair for You loans because we offer a different but complementary solution, helping them manage their finances. We’re doing some work surveying our audience on what it would mean to lose access to BNPL, and initial results show that a substantial proportion are worried at the prospect, saying it will make it harder to deal with financial shocks and day-to-day budgeting. This backs up what we’ve heard from our low-income, financially-excluded customers in the 11 years since we were set up.
I don’t envy the FCA. They had to do something about BNPL, given certain bad practices in the sector. But it was always going to be nigh-on impossible to strike exactly the right balance between protecting consumers and cutting off a vital source of affordable credit.
This is particularly the case given how widely used it is - while it is used by slightly more men than women, it has a broad appeal across different age groups and income brackets, as those UK Finance stats show.
Retailers, BNPLs and the wider credit industry are now keeping a close eye on how that picture shifts.
Questions to consider
I’ve been working in close partnership with retailers for a decade, and I know it’s a sector which is hugely responsive to the needs and preferences of communities across the UK, even in the most trying economic circumstances. Knowing what I know about your sector, and my experience of Fair for You’s growth as one of its first employees back in 2015, there are some things I hope you might ask yourselves.
- Do you have a range of different and inclusive finance options which work for different customer groups, including those who have a regular, reliable income but might struggle with a large, up-front payment?
- Do you make clear enough to customers that these different options are available, and the differences between them?
- Do your finance providers support you in explaining how their products might suit your customers?
What else could you do to help low-income families afford key items? Perhaps you can make it easier for someone to reserve an item with a refundable deposit (or no deposit), or make it easier for people to know how much stock is left of a sale item - these measures would give someone breathing room while they get funds together for a larger purchase. Or could your loyalty schemes provide extra discounts on essential household items?
Fair for You might fit into that picture. Or it might not. Either way, we’d be delighted to discuss the future of the consumer credit landscape with you.
About Fair for You
Fair for You is a not-for-profit lender, working in partnership with retailers to make affordable credit accessible to everyone - particularly the millions of people in the UK who are locked out of mainstream financial products and routinely pushed towards high-cost alternatives such as payday loans and doorstep lenders.
Read more on our BRC membership profile, or go to FairforYou.co.uk
