Our credit industry expert, Managing Consultant Ellie Sykes, sheds light on the rise of BNPL, its relevance to the Credit Risk market and the current recruiting trends across this discipline
We cannot ignore the fact that consumers are increasingly demanding credit, alongside a desire to press go on fast, flexible and convenient buy now, pay later (BNPL) options.
This trend has been on an upward trajectory since the start of the pandemic, according to consumer credit reporting agency TransUnion’s Consumer Credit 2022 white paper.
The research shows significant growth in the credit market when compared with pre-pandemic figures in 2019. Consumers now intend to take out mortgages (26% compared to 22%), credit cards (up from 13% to 22%) and unsecured personal loans (jumped from 7% to 16%).
The report also highlights a closing gap between traditional banks and digital first or fintech finance providers. It found that 21% of UK consumers planned to open a current account with a high street bank in 2022, while 20% are looking to apply with an online only bank or app.
As a result of these findings, TransUnion believes that BNPL is now as popular as more traditional or conventional forms of finance, reaching an unprecedented transaction value of £6.4bn in 2021.
In fact, almost two in five (37%) UK adults use these services ‘at least some of the time when shopping’. Consumers cite their use of BNPL as being driven by spreading the cost over time (68%) and the option for interest-free payments (62%). Ease of use was a key factor for 41% of shoppers.
"TransUnion believes that BNPL is now as popular as more traditional or conventional forms of finance"
It’s important, as the cost of living rises, that consumer spending is supported with a broad range of payment solutions and there’s little doubt that, with BNPL’s scope for interest-free credit, it’s going to remain popular in the current economic climate.
However, with BNPL borrowing comes an element of uncertainty, as people may struggle to meet payments, particularly in light of the ongoing cost of living crisis and mounting fuel prices.
Indeed, while more than half of consumers (54%) indicate that they are confident their financial situation will remain stable, four in 10 are still postponing any major spending due to concern over their financial future.
It’s for these reasons that the rise in dominance of BNPL is having a knock on effect around recruiting patterns and trends throughout the Credit Risk arena.
At MERJE, since the start of this year, we have seen a tangible upward swing in recruitment across the entire Credit Risk and Analytics field. This is to be expected as there has been so much growth across consumer demand for mortgages, loans, car finance and credit cards, all significant financial decisions which shouldn’t be taken lightly.
"lenders are specifically striving to hire Credit Analysts with exposure to affordability"
A huge amount of this increased recruiting activity has been within the BNPL space, as you might expect, having reviewed the mounting evidence of its increasing popularity among the general public. Furthermore, the need to recruit in the BNPL arena is coming from both existing, more established or traditional lenders and also from newer, tech-driven businesses.
What we have also noticed is that lenders are specifically striving to hire Credit Analysts with exposure to affordability, as whole teams are set up to support this area within Credit Risk. This is in order to mitigate the negative ramifications of overborrowing and subsequent late or missed payments.
This means that there’s plenty of scope for talented professionals to thrive in this area and for organisations to make the most of their skill-sets. To that end, we now support a significant number of credit card providers with their recruitment needs, but also many retail businesses offering point-of-sale financing due to increased demand for BNPL.
Yes, the future does look bright for BNPL and it has the scope to help people achieve affordability and spread payments if they need to. But, it shouldn’t be treated lightly, which is why businesses need to be prepared to handle any hitches along the way with as little financial fallout as possible.
Speaking of which, recent developments have drawn attention to the risks associated with the BNPL market as it grows at a significant pace without regulation in place.
Not only does the lack of regulation mean its proving difficult to estimate the true size of the UK’s buy now, pay later market, with estimates varying wildly from less than £6bn to as much as £16bn, but Citizens Advice has also recently reported some concerning statistics about consumer use of BNPL services.
The charity revealed in March 2022 that 1 in 12 people are using buy now, pay later services to cover basic costs - such as food and toiletries - and 42% of recent BNPL shoppers in the UK rely on credit cards or other forms of borrowing to pay their balance.
Following a review in February 2021, the FCA said there was “a strong and pressing case to bring BNPL business into regulation”, and the June 2022 announcement added timescales for those plans, with aims to draft BNPL legislation by the end of the year. But even with these timings in place, the earliest these new rules would likely come into play is late 2023, still leaving plenty of time unregulated business activity.
Now the questions are, how long will it truly take to bring the regulations into force? How will the changes affect consumer behaviour? And what will it mean for businesses in this market? We’ll find out soon enough…
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