Buy Now Pay Later (BNPL) payment methods were a big hit with less-affluent young people in 2023 – especially over the Christmas period – but a growing number have been hit with surprise late repayment fees and black marks on their credit scores. 

Much of this spending is online and across 2023 there was a 12.8% increase in UK shoppers using such methods when buying digitally, amounting to £16.8 billion, according to data from Adobe. It found that over the festive period – from November 1 to December 31 – the level of spend jumped 12.7% on the previous year to £3.3 billion out of a total of £24.4 billion of festive consumer spending online.

Vivek Pandya, digital insights lead analyst at Adobe, says: “Much of this growth is propped up by deep discounting from retailers and growth in the use of Buy Now Pay Later services showing consumers are still keeping a close eye on their finances.”

Unfortunately, this focus on budgets has not helped a growing number of people, particularly among the young, from being negatively impacted by BNPL. As many as 22% of BNPL users missed one or more repayments in the six months to December 2023, according to Adobe, with this figure rising to 34% for the 18 to 34-year-old grouping. 

Even the older demographic is not immune as the number of people aged over 55 missing a repayment increased from 7% to 10%, according to the Centre for Financial Capability (CFC). This is problematic because the CFC also found 21% of users were unclear what late repayment fees they would owe the company if they missed a repayment, as well as how this would affect their credit score.

Jane Goodland, trustee at CFC, says: “As the cost of living crisis continues to impact the British public, it is apparent that many users are increasingly reliant on these schemes, without fully understanding the risks involved. Our polling shows the high usage of BNPL particularly [among] young people, many of whom are facing difficult financial consequences as a result of these schemes.”

This growing use of BNPL among the young is a global phenomenon with such payment solutions most likely used by less affluent young people. The Bank for International Settlements found that more than half of BNPL borrowers globally were under 35 years old and that in the US as many as 25% of them earned less than $30,000 a year and only 10% had been to University. This chimes with research from the UK’s Financial Conduct Authority that found users are on average young, unemployed, and living in rented accommodation.  

Despite these areas of concern the adoption of BNPL by retailers continues apace. US retailer Walmart recently launched the payment method, with provider Affirm, on its self-checkout kiosks across its 4,500 stores. This extends its use of BNPL, which is already available on its website and app. 

Meanwhile BNPL payments provider Klarna has broadened out its offering to also include car rental with the recent announcement that it has agreed a deal with CarTrawler to bring the payment solution to the company’s 250 partner travel websites that offer car hire.