Gen Zs feeling ‘overwhelmed’ by BNPL repayments, Barclays research finds

By Gaia Lamperti

Gen Z consumers (18-24-year-olds) are disproportionately impacted by the pitfalls associated with unregulated ‘Buy Now, Pay Later’ (BNPL) products, with many using multiple providers to take on more debt than they can afford to repay, according to new research from Barclays.

This tendency has left the majority (66%) of parents concerned about their adult children using BNPL, with more than three quarters (77%) supporting Barclays’ call for tighter regulation of the sector.

The study, conducted among 2,000 BNPL users across the UK, shows that almost 4 in 10 younger shoppers spent more than they anticipated in the Christmas and January sales using unregulated BNPL loans, compared to 1 in 3 on a national scale. This spending has left Gen Z BNPL users with an average of £175.50 in monthly repayments, which they are using 20% of their monthly discretionary income to pay off.

And while almost half are left feeling overwhelmed by their repayments, 29% of them doubt their ability to pay back what they have borrowed. Almost 1 in 12 have already been contacted by debt collectors, 12% have seen their credit score impacted, and half regret using unregulated BNPL altogether because they ended up buying more than they could afford to repay. The products most commonly bought by Gen Z-ers using BNPL are ‘everyday fashion’ items (35%) and beauty products (26%).

“Rising inflation and energy bills are contributing to the growing cost of living crisis. This makes it much harder for consumers, particularly those in financially vulnerable groups, to stay on top of spending, and many are drawn to BNPL as a way to maintain their current lifestyle,” commented Antony Stephen, CEO of Barclays Partner Finance. “As things stand, newer BNPL products are not subject to the same regulation as more traditional credit agreements. With many providers, consumers are not even given a detailed affordability assessment, and the credit reference agencies are given no visibility of the loans that are dished out. That’s a problem because it allows consumers to get into unmanageable and overwhelming levels of debt, an issue that our research shows is hitting Gen Z shoppers particularly hard.”

Barclays’ research shows that close to 68% of 18-24-year-old users of unregulated BNPL products have racked up debts across multiple providers simultaneously, with 59% of those having had agreements in place with three or more providers at the same time. Unregulated BNPL providers are not required to report loans to the Credit Reference Agencies which means these multiple BNPL loans are not currently visible to other credit providers to factor into their own affordability assessments. This can result in further credit being extended to a consumer already struggling with debt, compounding the problem.

The data also shows that parents of grown-up children are uneasy about their offspring taking out unregulated BNPL loans. Two-thirds say they would be concerned if they found out their children were using BNPL payment methods, while almost half actively discourage them from doing so. Among parents whose grown-up children have already used BNPL, over 22% have had to bail them out of BNPL repayments.

The UK government has already announced its intention to regulate BNPL products, but there are still discussions around what form the regulation will take. To ensure consumers are appropriately and consistently protected, it is Barclays’ strong view that BNPL should be subject to the same full regulatory framework that applies for other consumer credit products, in line with the principle of ‘same activity, same risk, same rules’. When lending is regulated, robust affordability assessments are required on a customer’s personal financial circumstances before a loan is approved. This ensures that the customer is only borrowing what they are comfortably able to pay back.

One of the pitfalls of unregulated products is that thorough checks on a customer’s personal financial circumstances are not always carried out, and as a result, customers may be less likely to have sufficient funds available to pay back borrowing on time.

Richard Lane, Director of External Affairs at debt charity StepChange, commented: “All credit carries an inherent risk of debt for consumers, but on regulated credit, those risks are mitigated through stringent rules about advertising, affordability assessments and treating customers fairly. At present, despite the positives that BNPL can offer, the sector still remains outside those rules and that increases the risk of consumer harm.”

“It’s particularly worrying that young people with less financial experience to draw upon are becoming such widespread users of unregulated credit. We already know that the use of BNPL has a significant crossover with financial difficulty – our own research suggests that around a quarter of BNPL users are having to turn to borrow just to keep up with their essential costs. It’s vital to bring regulation of this sector into line with other forms of consumer credit,” he added.

Key findings

• 18–24 year-old consumers who use ‘buy now, pay later’ (BNPL) products spend 20 per cent of their discretionary income on repayments
• 29 per cent are concerned about their ability to pay back what they borrowed, and nearly 8 per cent have been contacted by debt collectors
• 50 per cent regret using unregulated BNPL products because they ended up buying more than they could afford to repay
• Almost half of parents now warn their grown-up children against taking out unregulated BNPL loans
• Debt charity StepChange voices concerns over the impact of BNPL on younger consumers, and echoes call for more robust and consistent regulation