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GUEST COMMENT How online retailers can choose credit providers that help safeguard customers from potential harms of BNPL

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As rising inflation and energy costs begin to bite, consumers are increasingly turning to unregulated short-term credit such as ‘buy now, pay later’ (BNPL) in order to maintain their current lifestyles.

In fact, our research shows that nearly a third of Brits have now used BNPL services, and almost nine in ten (88 per cent) retailers anticipate greater demand for BNPL in future.

As the popularity of these services continues to grow, responsible merchants looking to capitalise on this trend must think carefully about which credit providers they work with, in order to safeguard customers from potential harm.

When choosing a point-of-sale finance partner, it can be very tempting to focus solely on the commercials, filtering providers by highest acceptance rates or lowest fees. However, in the long term this approach is counter-productive, because it overlooks a vital part of the lending process – ensuring that the lending is right for each customer, and that the amount they’re borrowing is affordable.

As a retailer, if you skip this fundamental step, and jump straight to the commercials, you’re disconnecting yourself from the duty of care you have to protect customers from harm, and placing that care in the hands of lenders that are not always obliged to treat your customers responsibly. This duty of care will be reinforced in July, when the FCA introduces its new package of measures to ensure that firms act in good faith towards retail customers, and focus consistently on consumer outcomes.

As things stand, most consumer credit products in the UK are regulated by the Financial Conduct Authority (FCA). This means that lenders have to follow certain rules for things like credit and affordability checks, and making sure customers understand the product they’re applying for.

However, much of the BNPL market in the UK is unregulated, which means that the providers of those products do not have to meet the same standards, or follow the same rules – and this is not always apparent to you as a retailer.

For example, many BNPL providers don’t have to follow the same rules for checking affordability, and they don’t carry out hard credit checks, which means that they may enable your customers to accrue debt they can’t repay. In fact, research from Barclays Partner Finance found that 27 per cent of Brits are currently using BNPL and, of these, over a third (36 per cent) have used it to spend more than they can realistically afford. Customers also don’t benefit from the same consumer protections offered via regulated lending products, such as Section 75.

Another issue is the fact that many unregulated providers don’t currently report lending to the credit reference agencies unless the customer misses a payment. This creates a lack of transparency, and makes it hard for other lenders to get an accurate picture of a customer’s existing credit commitments. Without this transparency, it’s easy to see how a customer may be offered multiple loans by different BNPL providers, with each lender unaware of the customer’s mounting monthly repayments. Our research shows that the average BNPL user is currently paying off £293 in BNPL loans, and almost half (47 per cent) have had loans from different BNPL providers at the same time.

By not following the same rules, unregulated providers may sometimes be able to offer your customers higher acceptance rates, but potentially at the expense of some of them not being able to pay back what they’ve borrowed. As a retailer, you cannot underestimate the negative impact this could have on how those over-indebted customers perceive your brand, and the likelihood that they’ll recommend you to friends and family.

Similarly, retailers should be wary of misinterpreting customer satisfaction scores at the point of sale. Customers may initially be delighted by being accepted for an unregulated loan, particularly if they’ve been rejected for other forms of credit in the past, but that doesn’t necessarily mean they can afford the repayments.

Encouragingly, the government has acknowledged these issues, and a consultation is currently taking place to help shape how these products should be regulated in the future. However, while the industry waits for these new regulations to be confirmed and enforced, more consumers are being exposed to potential harm. Therefore, in the meantime, retailers would benefit from re-thinking their consumer credit strategy, and reprioritise the qualities they look for in a finance partner.

The first thing you should look for is a lender that shares your customer-centric values, and follows best-practice when it comes to lending responsibly. Focusing on customer outcomes and responsible lending will ultimately encourage positive relationships with customers and help safeguard your brand for the long term.

It’s also the right thing to do. Looking after the most vulnerable members of our society has been a defining part of British culture during the pandemic. Now, as the landscape changes, we need to replicate that approach for the financially vulnerable, and taking a responsible approach to lending is a vital part of that.

As one of the leading payments providers in Europe, Barclays is not anti-BNPL. Far from it. We have many of our own well-established point-of-sale finance products and have recently extended our relationship with Amazon to provide finance to its UK customers. However, we take a strong view is BNPL should be subject to the same full regulatory framework that applies for other consumer credit products, in line with the principle of ‘same activity, same risk, same rules’. In fact, Barclays already treats all point-of-sale lending as fully regulated, even where the product may qualify for an exemption, because we believe that’s how a responsible lender should behave.


Antony Stephen, chief executive officer of Barclays Partner Finance

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