- New report from Capital Economics examines the rapidly growing UK Buy Now Pay Later (BNPL) sector and the benefits and challenges it brings to consumers and merchants
- BNPL accounted for 3.6% of all online retail sales in the UK in 20201, with over 10 million users in 2020
- Almost two thirds (64%)2 of adults that have previously used a BNPL service to make an online payment said that the flexibility had helped them manage their finances
- If BNPL wasn’t available, one third of the value of items bought using BNPL would have been purchased using another form of credit, some of which would incur interest charges
- BNPL consumers cite spreading payments with no interest and additional security when buying from unfamiliar sellers as key reasons to use buy now pay later.
London, 10th March 2021: Leading independent economic consultancy Capital Economics has today released findings from its latest report - BNPL and The New Economic Landscape - highlighting the benefits of Buy Now Pay Later (BNPL).
The report, commissioned by Klarna, examines the role BNPL providers play in the U.K, the benefits to consumers and retailers, and the challenges the sector faces as the market continues to grow.
Shifting payment preferences
Payments in the UK have seen rapid change over recent years as people have increasingly used cards, mobiles and electronic wallets to make payments and looked for alternatives to “traditional” forms of credit. Debit cards are now the most popular form of payment in the UK, accounting for 4 in 10 of all payments in 20193. A similar shift is occurring in consumer credit, with credit cards steadily losing share to other forms of credit over the past 10 years4.
As part of the growth of the online payments sector and the shift from credit to debit, new solutions in the form of BNPL products have rapidly risen in popularity. The report found that over 10 million people (one fifth of the UK’s adult population) used a BNPL option to purchase goods online in 2020, with the payment method accounting for nearly 4% of all retail sales made online in 20205.
BNPL helps consumers effectively manage their finances
Almost two thirds (64%)6 of adults that have previously used a BNPL service to make an online payment said that the flexibility had helped them manage their finances. If all purchases made through BNPL in 2020 had instead been made on credit cards over the same period, it could have cost consumers £76 million7 in interest payments alone, excluding missed payments or membership fees. This figure assumes the minimum fee was paid after one month and the balance was paid off after two months. Additionally, some spending is likely to have happened on even higher cost alternatives. As more consumers choose BNPL and it continues to grow and gain share, the potential for savings on interest payments and fees will also rise.
Capital Economics asked consumers to consider what they would have done had buy now pay later not been available at the time of purchase. About a third of purchases would have been made using an alternative form of credit, some of which would be higher cost8. A further third would have been made without using credit at all, indicating that customers enjoy benefits other than deferring payment. 78% of BNPL users noted that having the security provided in purchases by using a reputable company, rather than directly interacting with less well known seller was ‘fairly’ or ‘very’ important when choosing to use BNPL to make online payments.
Retailers have had to adapt at speed to a shifting market
Retail was amongst the hardest-hit sectors as COVID-19 forced brick and mortar stores to close for large portions of 2020. As focuses shifted online, retailers sought every advantage in the battle for market share. One such advantage was adding BNPL payment options to their checkout process, something there was significant consumer demand for. Over 9.5 million consumers in the U.K. noted they actively avoid buying from retailers that don’t offer BNPL as a payment method.9
Once the current moratorium on insolvencies ends on 31st March and other government support for businesses starts to be withdrawn, Capital Economics expect the number of insolvencies to surge. SMEs are likely to be particularly vulnerable. The latest Small Business Index from the Federation of Small Business suggests that, without further support, 250,000 small businesses are set to fold in the next year, many in the retail sector10.
The report found that BNPL offers retailers, including SMEs, the chance to better serve consumer interests and, in turn, receive immediate payment and offset risks including late or non-payment onto providers.
Commenting on the publication of the report, Andrew Evans, Managing Economist of Capital Economics said:
“The use of BNPL has grown rapidly in the UK over recent years. Consumers are set to lead the economic recovery and when BNPL is used responsibly it can help consumers to manage their finances and provide security in purchases for both consumers and retailers”
Alex Marsh, Head of Klarna UK commented:
“As the report makes clear, during 2020, UK consumers changed their spending enormously, paid down credit card debt and increased overall household savings to £300bn11. At the same time, consumers shopped more online and turned increasingly to buy now pay later as a way to avoid paying interest, increase security when shopping with unfamiliar retailers and manage returns. These factors will be crucial as we look ahead to a retail recovery driven by cautious consumers looking for security, flexibility and convenience.
The report highlights the significant cost-savings potential for consumers, with an estimated £76 million saved in fees in 2020 by using BNPL instead of the equivalent spend on credit cards12. Meanwhile, some of that spending is likely to have happened on higher cost alternatives. As more consumers choose BNPL and it continues to grow and gain share, the potential for savings on interest payments will also increase.”
The full BNPL and the new economic landscape report is available to download here.
Notes to editors:
Capital Economics compiled the research using a combination of publicly available official statistics, existing literature and an original survey of British consumers.
Survey of British consumers in the BNPL and the new economic landscape report, unless otherwise stated, was conducted by YouGov Plc. Total sample size was 6305 adults, of which 1155 had used BNPL services to make an online payment within the last year. Fieldwork was undertaken between 8th - 13th January 2021. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+). Capital Economics assumed that national averages apply to Northern Ireland to scale up to UK figures.
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About Capital Economics
Capital Economics is a leading independent international macro-economic research consultancy, providing research on Europe, the Middle East, United States, Canada, Africa, Asia and Australasia, Latin America and the United Kingdom, as well as analysis of financial markets, commodities and the consumer and property sectors. In addition, Capital Economics undertakes bespoke research projects commissioned by companies, government agencies and trade associations.
We make shopping smooth. With Klarna consumers can buy now and pay later, so they can get what they love today. Klarna’s offering to consumers and retailers include payments, social shopping, and personal finances. Over 250,000 retail partners, including H&M, IKEA, Expedia Group, Samsung, ASOS, Peloton, Abercrombie & Fitch, Nike and AliExpress have enabled Klarna’s innovative shopping experience online and in-store. Klarna is one of the most highly valued private fintechs globally with a valuation of $31 billion. Klarna was founded in 2005, has over 3,500 employees and is active in 17 countries. For more information, visit klarna.com.
(1) Calculated by Capital Economics by scaling results from YouGov survey.
(2) Calculated by Capital Economics. ‘Don’t know’ answers were removed from the sample and distributed in proportion to the other answer options.
(3) UK Finance, ‘UK Payments Market Summary 2020’, June 2020.
(4) Bank of England. Between 2010 and February 2020, gross credit card lending grew at an average of 5.5% annually compared to 9.3% for other consumer credit.
(5) Calculated by Capital Economics by scaling results from YouGov survey.
(6) Calculated by Capital Economics. ‘Don’t know’ answers were removed from the sample and distributed in proportion to the other answer options.
(7) Calculated by Capital Economics by estimating £4.1 billion total online BNPL spending in 2020 and comparable spend using average 20.72% APR figure and assumes the minimum fee was paid after one month and the balance was paid off after two months.
(8) Calculated by Capital Economics using raw data from YouGov survey.
(9) Finder, ‘Buy now pay later (BNPL) statistics 2020’ [website], October 2020.
(10) Federation of Small Business, ‘FSB Voice of Small Business Index Quarter 4 2020’, February 2021.
(11) Calculated by Capital Economics.
(12) Calculated by Capital Economics by estimating £4.1 billion total online BNPL spending in 2020 and comparable spend using average 20.72% APR figure and assumes the minimum fee was paid after one month and the balance was paid off after two months.