Shining gentle on ‘shadow credit score’ – what’s Purchase-Now-Pay-Later and who makes use of it? – Financial institution Underground


Gerry Gunner and James Waddell

Purchase-Now-Pay-Later (BNPL) is a comparatively new type of client credit score that you just may need seen as a fee possibility when buying on-line or in particular person. Nevertheless, there may be little evaluation within the public area about who’s utilizing BNPL credit score within the UK and its contribution to whole family debt. We’ve used the Financial institution’s NMG Consulting survey to disclose that BNPL debtors are sometimes youthful adults and renters, and usually tend to report indicators of monetary misery.

What’s BNPL?

Defining precisely what BNPL is will be difficult. The one factor all BNPL merchandise have in frequent is they permit customers to defer fee throughout a number of instalments when shopping for items or companies.

Many BNPL merchandise are exempt from regulation as a result of they don’t cost curiosity on repayments. Income is generated by charging retailers a payment for facilitating the transaction. Some lenders complement this by charging debtors charges for late funds. Usually these merchandise are supplied by newer fintech corporations, for whom BNPL makes up most or all of their lending.

Another BNPL merchandise are regulated and cost curiosity on repayments. These merchandise are sometimes supplied by extra established lenders who’ve banking licences. For these lenders, BNPL merchandise are comparatively new and make up a really small a part of their lending enterprise.

Who makes use of BNPL?

Given BNPL is comparatively new and far of the market is unregulated, there may be little publicly obtainable knowledge on its use. In 2021, the FCA launched the Woolard Evaluation which coated unregulated BNPL merchandise. It discovered that using BNPL merchandise practically quadrupled in 2020 to transactions value £2.7 billion. Knowledge collected from some BNPL suppliers revealed 25% of customers are 18–24 and 50% are aged 25–36.

To shed additional gentle on who makes use of BNPL we analysed the Financial institution’s NMG family survey, which makes use of weights to be nationally consultant. Within the March 2023 wave of the survey we requested respondents if anybody of their family owed any cash, and if that’s the case how a lot, on BNPL merchandise outlined as:  

Purchase now pay later agreements; the place fee is deferred or break up into instalments, usually with no curiosity (eg Klarna, Clearpay, Monzo Flex, Instalments by Barclays and so on).

The NMG Survey is run on the family degree, whereas the FCA’s knowledge was collected on the person degree. This implies our outcomes is not going to be straight akin to the FCA’s.

For the needs of this text we outline ‘customers’ as households reporting BNPL use. We’ve filtered respondents to solely embrace those that are sole or joint monetary choice makers of their family.

On mixture, the NMG knowledge means that 11% of households, or 3.1 million households throughout the UK reported owing cash on BNPL. Amongst customers the imply steadiness was £866, implying an impressive mixture BNPL steadiness of round £2.7 billion. The distribution of balances is skewed. Numerous BNPL customers report balances of some hundred kilos or much less, with a small quantity reporting a lot bigger balances. The median steadiness of customers is £300 and the ninetieth percentile is £2,000.

Along with mixture statistics, the NMG knowledge permits us to realize perception into how BNPL use varies throughout totally different households. There are 4 traits we analyse: age, revenue, housing tenure and self-reported monetary problem.

Chart 1a: Share of households utilizing client credit score merchandise by age group

Chart 1b: Imply family BNPL steadiness by age group


In Chart 1a, we see BNPL use is commonest amongst 25–34 yr olds. We’ve included credit score and retailer playing cards as a reference level. BNPL has overtaken retailer playing cards for all age teams, however stays much less fashionable than bank cards. There are a selection of the reason why BNPL use might be greater for youthful individuals; BNPL is often built-in into on-line buying, which is extra fashionable with youthful individuals, and older individuals have already got higher entry to credit score via bank cards. 

In Chart 1b, we see that 35–44 yr olds report the very best BNPL balances. Round 37% of households who owe £2,000 or extra on BNPL are aged 25–34, essentially the most of any age group.  

Chart 2a: Share of households utilizing BNPL by revenue decile

Chart 2b: Imply family BNPL steadiness by revenue decile


We anticipate BNPL to be extra fashionable with decrease revenue households. Unregulated BNPL suppliers should not have to hold out affordability checks on debtors (though they could select to take action), so poorer households may flip to BNPL if they’re excluded from different types of regulated credit score.

In Chart 2a there isn’t any clear relationship between the BNPL utilization fee and family revenue. Households with incomes between 45,000–54,000 are the more than likely to report utilizing BNPL. BNPL balances enhance with family revenue (Chart 2b). The highest two revenue deciles account for about 38% of households who owe £2,000 or extra. There are a small variety of low revenue households with excessive BNPL balances, though the common BNPL steadiness for this group is about the identical as for all households.

Chart 3a: Share of households utilizing BNPL by tenure

Chart 3b: Imply family BNPL steadiness by tenure

Housing tenure

It is very important perceive the connection between tenure and client credit score merchandise as mortgage debt and lease funds could be prioritised over funds for client credit score. These housing obligations may make mortgagors and renters extra more likely to miss repayments or default on client credit score.

In Chart 3a we see renters are more likely to be BNPL customers than different teams, and outright house owners are the least seemingly. That is partially defined by the connection between housing tenure and age, as youthful individuals are extra more likely to be renters. Nevertheless, we will management for this relationship by taking a look at use by tenure throughout youthful households solely. After doing so we see that renters are nonetheless extra seemingly than different teams to be BNPL customers. In Chart 3b we see that renters report the bottom balances, whereas outright house owners report the very best balances. That is partially defined by the connection between housing tenure and revenue, as renters are a lot much less more likely to have very excessive incomes than mortgagors or outright house owners. Mortgagors account for round 38% of households owing £2,000 or extra and renters 34%.

Monetary problem

Youthful individuals and renters usually tend to be BNPL customers, and these teams are likely to have much less resilient funds. The info confirms that BNPL customers usually tend to show indicators of monetary vulnerability. 68% of BNPL debtors are involved about their degree of borrowing, in comparison with 45% of different debtors. BNPL customers usually tend to report falling behind on any of their unsecured debt by two months or extra over the previous yr. 21% of BNPL customers report having been in arrears, in comparison with 6% of different debtors.


Knowledge on BNPL is restricted, partly on account of its exemption from regulation. Family survey knowledge reveals financially susceptible teams equivalent to renters and people aged 18–34 usually tend to be BNPL customers. They’re additionally considerably extra more likely to report indicators of monetary misery. 

Alternatively, the poorest households are not any extra seemingly than common to be BNPL customers. At the moment BNPL use just isn’t as widespread as different types of client credit score and common balances are small. Regulated lenders’ exposures to losses from BNPL lending are restricted.

Gerry Gunner and James Waddell work within the Financial institution’s Macrofinancial Danger Division.

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