Five takeaways from the UK market
LONDON, 20 October 2021 / PRNewswire / – Buy Now Pay Later (BNPL) has taken off in the UK market. Consumer expectations have shifted from traditional loan and payment products to low-cost or free services that deliver convenient and smart digital experiences. The concept of BNPL has evolved into an integrated digital payment and lending product that is much in demand and popular with consumers and merchants.
In Bain & Company’s new survey of over 2,000 UK online shoppers, we found widespread use of BNPL services reflecting long-term changes in consumer behavior. From the analysis of our customer survey and data from BNPL companies, we estimate that around 10.1 million people used BNPL in the UK in 2020, with the number of users increasing from 70 to 80% compared to the previous year.
The full report, Buy Now, Pay Later: Moving Center Stage with Consumers and Regulators, is available here.
The UK’s five takeaways include:
- There is a strong demand for BNPL services which drives sustained growth as BNPL addresses the mass consumer market
- BNPL has a favorable perception of consumers due to the simplicity of payment at checkout and the ability for users to better manage their cash flow
- BNPL is a key ingredient in the merchant growth plan because consumers love convenience
- The digital upheaval in financial services continues as consumer expectations shift from traditional loans and products to free or low cost services with convenient and smart digital experiences
- Traders must stay ahead of looming regulation and the need for industry-wide debt data to ensure adequate consumer protection as use increases
Among the other conclusions of our BNPL study and consumer survey:
- BNPL’s deal value in the UK reached £ 6.4bn in 2020, after rising 60-70% from the previous year. We expect this growth trajectory to persist as BNPL caters to a mass consumer market and expands for use in a wider range of products and use cases.
- 49% of online shoppers aged 25-34 surveyed in the UK said they used BNPL and 51% used credit cards; the generational shift to BNPL is even more pronounced among younger cohorts. Among respondents aged 18-24, more BNPL (42%) than credit cards (31%)
- BNPL has a Net Promoter Score℠ of 30 for consumers compared to 6 for credit cards and -15 for overdrafts. Consumers are drawn to the interest-free nature of BNPL as well as the ease of payment at checkout and the ability to better manage their cash flow by deferring payments
- In the year 2020 we estimate that BNPL users in the UK saved £ 103million in credit card interest charges
- 57% of merchants using BNPL in the UK reported an increase in cart conversion and 46% saw an increase in average order value. Compared to card payments, orders through BNPL can be 20-30% larger as consumers spread out payments and appreciate the convenience
- 54% of UK merchants said they exposed their brand to new customers through co-marketing activities, and 23% were able to follow direct customer referral of their BNPL suppliers
- 76% of traders surveyed in the UK said BNPL would be a key part of their plan for growth over the next year
Around 20,000 traders in the UK now offer BNPL at checkout and the industry is on the verge of tighter regulation from the UK Financial Conduct Authority. Our analysis shows that current credit referral systems and processes are not designed for higher frequency, low value credit checks and reports on every transaction. Concerns about insufficient ability to share credit data between BNPL companies and other lenders will also need to be addressed.
More than two-thirds of the 400 BNPL users surveyed under the age of 45 want their use of BNPL to contribute to their credit score, but BNPL providers still face the challenge of sharing credit data with each other. Bain’s research suggests three options for overcoming this problem:
- Data sharing mechanisms should become more inclusive for thin file clients, including those with limited credit histories
- Credit scoring methods should take into account the short-term and low-value nature of BNPL balances, and
- Open banking regulations could allow BNPL companies to work with credit reference agencies and banks to help clients build their credit profiles.
“BNPL benefits both consumers and traders and has a clear role to play in the UK financial services market,” said Jeff Tijssen, partner at Bain & Company and leader of the company’s global fintech business. “Increased regulation will help protect consumers by creating standards for BNPL providers to follow. Equally important, however, is the willingness of BNPL companies to actively put the well-being and priorities of customers at the forefront. Businesses will thrive by combining the conveniences of new digital experiences with active measures to promote sound financial management and debt repayment. “
“The success of the BNPL industry has been its ability to attract mass audiences across all income and age groups,” said Ryan garner, associate partner at Bain & Company and co-author of the report. “This is due to their marketing as well as their growing presence in e-commerce alongside popular retailers. We expect BNPL to become much more of an influencer of customer purchasing decisions as the industry seeks new growth opportunities beyond payments. “
Editor’s Note: To arrange an interview, please contact Aliza Medina To [email protected] or +44 207 969 6480
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SOURCE Bain & Compagnie