More than 17 million have used buy now, pay later services

More than 17 million UK customers have now used a buy now pay later (BNPL) company to make an online purchase, company data shows.

The payment method is also set to have its biggest Christmas yet, experts say.

BNPL firms allow people to manage their shopping, either by postponing their bill for a short while, or splitting it into more manageable chunks over time, interest free.

But critics say users too easily end up in debt and tougher rules are needed.

The biggest provider in the UK, Klarna, has seen its customer base double to 15 million since early 2020. The market's other main players, Clearpay and LayBuy, are also expanding fast.

Growth is fastest among users in their 40s and 50s, showing BNPL is no longer just a millennial and Gen Z trend.

'Understand what you sign up for'

A recent survey for Citizens Advice found that almost one in 10 people were planning to use BNPL to help with Christmas shopping.

Kate Hobson from Citizens Advice urged consumers "not to spend more than they can afford".

"If you're considering using buy now pay later, make sure you understand what you're signing up for, how you'll make the repayments and what will happen if you can't pay on time," she added.

The main players in the market, however, feel they offer consumers a hassle-free means to pay for purchases without interest. It is also much cheaper than a credit card if late payment fees aren't incurred, they add.

• Buy Now Pay Later: 'I'm stressed over debt'

• Charities sound alarm over buy-now-pay-later debt

Klarna, which launched in the UK in 2014, charges no interest or fees if payments are on time and claims around 40% of users repay money early.

The service launched a "pay now" option and updated its terms ahead of an expected crackdown on the sector.

Platform Clearpay stresses it does not report late paying users to credit agencies, and maintains that many of its users are in fact better with their money than they are given credit for.

"There are misperceptions that young people are bad at saving and investing money, however a report by Accenture on Clearpay users has shown that young people are more cautious with money than older people," a spokesperson said.

LayBuy saw transactions grow 500% between 2019 and 2020 and the company reported a 56% spike in transactions last November, as Christmas shopping commenced. The family-run business, which was the first to run affordability checks on users, has since listed on the Australian Stock Exchange.

Millions of shoppers use buy now pay later services to spread the cost of their online shopping throughout the year. Like any kind of credit, if you keep on top of it, it can be a sensible way of making sure you're not hit with a big bill at one point of the year.

But of course it also makes it more tempting to spend more than you would do otherwise, especially with fewer credit checks. At this time of year, with so many different credit options available and other bills due for payment, lots of customers can get stuck in a real quagmire.

It's always important to check the terms and conditions before you sign up - figure out what you are expected to pay back and when, don't just clip 'Pay Later' and hope for the best. If you do get into difficulties then flag it up quickly, most of the companies can arrange repayment plans with you which are more manageable if you contact them. And of course get advice from a debt charity directly if you are feeling stuck.

'Proportionate approach'

The Treasury is consulting on how to regulate the BNPL sector, and the Financial Conduct Authority will publish proposals some time next year.

A Treasury spokesperson said it was taking a "proportionate approach".

"Buy now pay later can be a helpful way to manage your finances so it's important that regulation is balanced and proportionate, ensuring that customers are given appropriate protections."

But many charities want action to be taken sooner, arguing that many consumers could be pushed into borrowing more than they can afford this Christmas. Debt charity Christians Against Poverty recognises BNPL can be "attractive", especially at Christmas, but it worries users could lose track of spending.

"We're particularly concerned about those consumers who turn to credit like BNPL as a means of keeping on top of essentials, like bills or the weekly food shop," said spokesman Jonathan Shaw.

"Add to this the additional pressure to spend at Christmas and consumers can be left in an even more financially difficult situation."

Growth in the sector shows no sign of slowing down. Established money brands Paypal and Monzo are poised to enter the market, and BNPL technology is evolving so that some brands can be used to make any purchase on any site.