FCA secures contract changes for buy-now-pay-later customers as more consumers use the product 

New research from the Financial Conduct Authority (FCA) shows that there has been a significant increase in the use of buy-now-pay-later (BNPL).  

The news comes as the FCA has secured further changes to potentially unfair and unclear contract terms for unregulated BNPL firms. 

The data, which is part of the FCA’s Financial Lives research, shows that 27% of UK adults (approximately 14 million) have used BNPL at least once in the six months prior to January 2023. This is up from 17% who said they had used it in the preceding 12 months in May 2022.    


The research also found that frequent users of BNPL are more likely to be in financial difficulty. Consumers who have used BNPL more than 10 times in the last 12 months were:

  • over twice as likely as those who have not used BNPL to also have a high-cost credit product (48% vs. 22%),   
  • almost twice as likely to have increased the amount of debt on credit products over the last year (51% vs. 27%), and   
  • over four times as likely to have missed a payment of a bill or credit commitment in three of the last six months (27% vs. 6%).  

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: “Our research shows a significant increase in the use of BNPL over the past year.  

“When used appropriately, the product provides valuable benefits, but we want to ensure that consumers, particularly those in vulnerable circumstances, have adequate protections and are given sufficient information.” 


While the FCA does not have regulatory oversight over BNPL products, it is determined to protect consumers using financial services where it can.   

The FCA has used its powers under the Consumer Rights Act 2015 to secure changes to potentially unfair and unclear contract terms in this sector, building on the FCA’s work with other BNPL providers last year and the guidance that was issued at the time. 

The FCA was concerned that PayPal and QVC customers were at risk of harm because of how some of the contract terms were drafted. As a result of the FCA’s continued focus in this area, both firms have voluntarily made their continuous payment authority terms easier to understand – and PayPal has made terms relating to what happens when a consumer cancels the purchase funded by the loan clearer and fairer.


The FCA reminds all firms to ensure that their consumer contracts comply with all requirements of consumer protection legislation that apply to their business. 

Katja Oakley-Bell, financial planning expert at Quilter: “Buy Now, Pay Later (BNPL) services have surged in popularity in recent years, offering consumers a convenient way to make purchases without paying the full amount upfront. But if used incorrectly BNPL can be a catalyst for someone falling into a spiral of debt. We need to make sure that the next generations are equipped with a decent level of financial education so that they can use these tools responsibly and are alive to the risks they can bring.

“With the allure of instant gratification and seemingly low-risk commitments, it’s easy to see why many are drawn to such services. While BNPL services might present themselves as interest-free alternatives, there can be hidden costs. Late fees, potential impacts on credit scores, and the temptation to spend beyond one’s means can lead to unintended financial burdens. Financial education should emphasise the importance of reading the fine print and understanding the full implications of any financial commitment. 


“Especially in this current cost of living crisis budgeting is key and BNPL can disrupt traditional budgeting methods by allowing consumers to acquire goods without immediate payment. This can lead to overspending, as the delayed payments might make costs seem more manageable than they truly are. While BNPL services can be a useful tool, it’s important that, if used, they are taken into account when budgeting and developing financial plans. For those who are not regularly budgeting, BNPL can rapidly become dangerous. It’s essential that financial education covers the principles of budgeting with the inclusion of BNPL as a potential liability. It must also stress the importance of differentiating between wants and needs, encouraging mindful consumption within your means.

“The “pay later” model can instil a false sense of security, leading individuals to accumulate debt without feeling the immediate weight of their choices. Debt itself is not necessarily a bad thing, but good financial education from an early age can address the psychological aspects of debt, ensuring consumers recognise the long-term implications of their short-term decisions. For example, many don’t realise that certain BNPL services can impact their credit score, either positively or negatively. Just as with credit cards or loans, consistent late payments can harm one’s credit. The Centre for Financial Capability, a charity, found that almost a quarter of UK adults who had used BNPL services had failed to pay on time, rising to 35 per cent for people aged between 18 and 34. It is essential that we are helping children understand the potential impact that damaging your credit score can have is crucial.

“While Buy Now, Pay Later services offer convenience and flexibility, they come with their own set of risks. Comprehensive financial education is pivotal in ensuring that consumers navigate this landscape with awareness and prudence. As with any financial tool, knowledge is the key to using it responsibly.”


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