The UK Buy Now, Pay Later (BNPL) market has grown rapidly during the pandemic as consumers increasingly turn to retail finance services to make their purchases, despite the risks involved. Given government plans to better regulate the field, how can furniture retailers ensure they are heading in the right direction with BNPL? Adam Kirby, head of sales at “responsible finance” provider Etika, shares his perspective…
A report by RFI Global revealed that customers are very interested in using BNLP, especially for high-value items such as electronics or appliances. For furniture retailers, the BNPL option gives customers greater control over how they choose to pay for their items, helping to drive sales.
However, we see this sector becoming increasingly volatile and difficult to navigate for homeware retailers and customers. News that the UK government plans to tighten regulations on BNPL lenders, along with fears that the cost of living crisis is driving users into debt, has cast a long shadow of uncertainty over the future of the sector.
For UK retailers, navigating the consumer credit landscape has become precarious, as the future well-being of customers is front and center. It is essential that the industry pivots to ensure that it prioritizes reliable and secure long-term financial partnerships.
The evolution of the BNPL
With the massive migration to online shopping during the pandemic, the e-commerce experience has become very important for retailers wishing to stand out from their competitors and increase conversion rates. Consumers were looking for personalized and more flexible payment solutions to make their shopping experiences smoother – this was the context that led to BNPL’s initial success in the UK market, which extended to retail outlets. furniture online and in store.
The growth of the e-commerce market and the use of the BNPL have a strong correlation. E-commerce growth has increased nearly fivefold when comparing 2020 growth rates to the average growth rate seen from 2015-2019, and the BNPL market reported a CAGR of over +85% from 2019-21.
However, BNPL’s continued growth is in question as more and more governments review their approach to governance of this once unregulated consumer credit space. These announcements also coincide with growing concerns about the possible dangers of using BNPL.
BNPL providers are not required to perform full consumer affordability checks, making it easier for customers to accumulate debt with multiple lenders. A report by Citizens Advice found that 54% of people facing debt collection for BNPL debts have turned to another form of borrowing to meet their repayment obligations. The same report also showed that in 2021 BNPL users were charged £39 million in late fees.
These numbers shouldn’t be taken lightly by furniture retailers, as partnering with the wrong finance provider can risk damaging their customers, as well as their business’ reputation – a Financial Wellness Group survey found. revealed that 47% of customers seeking debt solution services who have incurred debt with BNPL are looking to use a home furnishing loan.
The good news is that BNPL’s future will most likely be regulated, making it easier for furniture retailers to find reliable partners.
Plans to tighten regulation for BNPL lenders signal a shift, where the UK government is seeking to establish greater oversight of this space. Increased regulation is an opportunity for the consumer credit market to set better standards and drive safer growth. This will give clients the confidence they need to use BNPL services within safe parameters. Additionally, in response to the cost of living crisis, more finance providers should prioritize consumer welfare. We anticipate that financing solutions will evolve to promote responsible lending practices.
At etika, we expect an immediate change in the way the retail consumer credit ecosystem approaches lending when the rules come into force. But, given that the share of online consumers using BNPL for home improvement is 19%, it’s important homeware retailers stay ahead of compliance by acting now by forging the right partnerships, creating better processing and verification options.
Consumer credit is a very dynamic sector and technological advances are changing the way we buy and the way we look at credit. Ultimately, furniture retailers need to consider their current BNPL partnerships to ensure their values align with the approach of their third-party lenders. With increasing media and regulatory pressures, the stakes are higher than ever.