The Bank Underground blog, written by Bank of England staff, has examined the buy now pay later (BNPL) market and who uses it.

In a post titled Shining light on ‘shadow credit’ – what is buy now pay later and who uses it?, Gerry Gunner and James Waddell, who work in the bank’s macrofinancial risk division, use the Bank’s NMG Consulting survey to find out who typically uses BNPL.

What is buy now pay later?

BNPL products allow users to defer payment across multiple instalments when buying goods or services.

Many BNPL products are exempt from regulation because they don’t charge interest on repayments – these products tend to be offered by new fintech companies. Instead revenue is generated by charging retailers a fee for facilitating the transaction. Some lenders supplement this by charging borrowers fees for late payments.

Some other BNPL products are regulated and charge interest on repayments. These products are typically provided by more established lenders with banking licences.

Who uses buy now pay later?

There are various statistics that study who uses BNPL. Gunner and Waddell cite the Financial Conduct Authority’s Woolard Review which covered unregulated BNPL products and found that the use of BNPL products nearly quadrupled in 2020 to transactions worth £2.7bn. Data collected from some BNPL providers revealed 25% of users are aged 18 to 24 and 50% are aged 25 to 36.

The pair also analysed the Bank of England’s NMG household survey, with its data suggesting that 11% of households, or 3.1 million households across the UK, reported owing money on BNPL.

Among users the mean balance was £866, implying an outstanding aggregate BNPL balance of around £2.7bn.

The NMG data also offered an insight into how BNPL use varies across different households.

BNPL use spikes for 25 to 34-year-olds

The data suggests BNPL use is most common among 25 to 34-year-olds. Around 37% of households who owe £2,000 or more on BNPL are in this demographic, the most of any age group.

Although the pair expected BNPL to be more popular with lower income households, they didn’t find a clear relationship between the BNPL usage rate and household income.

Households with incomes between £45,000 and £54,000 were the most likely to report using BNPL and there were only a small number of low income households with high BNPL balances.

Survey data suggested that renters are much more likely to be BNPL users than other groups, and outright owners are the least likely. This is partially explained by the relationship between housing tenure and age, as younger people are more likely to be renters.

Gunner and Waddell noted that “younger people and renters are more likely to be BNPL users, and these groups tend to have less resilient finances.”