The UK’s buy now, pay later (BNPL) market grew rapidly during the pandemic, with consumers increasingly turning to retail financing services to make purchases, despite the risks involved in doing so. Given the Government’s plans to better regulate the field, how can furniture retailers ensure they take the right direction with BNPL? Adam Kirby, head of sales at “responsible finance” provider Etika, shares his views …
A report by RFI Global found that customers are highly interested in using BNLP, especially for higher-value items such as electronic goods or household appliances. For furniture retailers, the BNPL option provides customers with greater control over how they choose to pay for items, which helps to boost sales.
However, we are seeing this sector become increasingly volatile and difficult to navigate for homeware retailers and customers alike. News that the UK Government plans to tighten regulations on BNPL lenders, as well as concerns that the cost of living crisis is pushing users into debt, have cast a long shadow of uncertainty over the sector’s future.
For UK retailers, navigating the consumer finance landscape has become precarious, as the future wellbeing of customers comes into sharp focus. It is critical that the industry pivots to make sure that they prioritise reliable and safe long-term finance partnerships.
The evolution of BNPL
With the mass migration to online shopping during the pandemic, the ecommerce experience became very important for retailers wishing to stand out from competitors and increase conversion rates. Consumers were looking for personalised and more flexible payments solutions to make their shopping experiences smoother – that is the context that drove the initial success of BNPL in the UK market, which spread to the PoS of furniture stores both online and in-store.
The growth of the ecommerce market and BNPL usage have a strong correlation. Ecommerce growth leapt nearly fivefold when comparing 2020 growth rates to the average growth rate seen from 2015-19, and the BNPL market reported a CAGR of more than +85% from 2019-21.
However, continued growth of BNPL has come under question as more and more governments review their approach to governing this formerly unregulated space of consumer finance. These announcements also coincide with growing concerns surrounding the possible dangers of using BNPL.
BNPL providers are not required to perform full affordability checks on consumers, which makes it easier for customers to accumulate debt across multiple lenders. A Citizens Advice report found that 54% of people facing debt collection for BNPL debts turned to another form of borrowing to meet repayment obligations. The same report also showed that in 2021, BNPL users were charged £39m in late fees.
These figures should not be taken lightly by furniture retailers, as partnering with the wrong finance provider can risk harming their customers, as well as their business’ reputations – a survey by the Financial Wellness Group found that 47% of customers who are seeking debt solution services and have had BNPL debt are looking to use a loan on furnishings.
The good news is that the future of BNPL will most likely be regulated, which will make it easier for furniture retailers to find reliable partners.
Plans to strengthen regulation for BNPL lenders signal a shift, where the UK Government seeks to establish greater oversight of this space. Increased regulation is an opportunity for the consumer finance market to build better standards and drive safer growth. This will give customers the confidence they need to use BNPL services within safe parameters. Additionally, in response to the cost of living crisis, more finance providers should prioritise consumer wellbeing. We anticipate financing solutions will evolve to promote responsible lending practices.
At etika, we expect an immediate change in the way the retail consumer finance ecosystem approaches lending when the rules come into effect. But, seeing as the share of online consumers using BNPL for home improvements is 19%, it is important for homeware retailers to stay ahead of compliance by acting on it now by forging the right partnerships, building better processing and vetting options.
Consumer finance is a very dynamic sector, and technological advancements are changing the way we shop and how we look at credit. Ultimately, furniture retailers must consider their current BNPL partnerships to ensure that their values align with their third-partner lenders’ approach. With the increased media and regulatory pressures, the stakes are higher than ever.