Shoppers racked up £3.3bn of debt using buy-now-pay-later (BNPL) products in a spending spree over the Christmas period, new data has revealed.
BNPL spending rose by £1bn over Christmas as Brits took advantage of products offered by fintech firms like Klarna and Clearpay, but 40 per cent of consumers are yet to pay the debt back, according to data from money platform Credit Karma.
Credit Karma warned of a growing debt bubble amongst BNPL customers, as 11 per cent of users admit that they have missed repayments, and a similar number expect to fall behind this year, according to the data.
Ziad El Baba, General Manager at Credit Karma, said: “Spreading out payments can be helpful in certain circumstances, however it becomes problematic when consumers borrow more than they’re able to comfortably pay back.
“Plus, most buy now, pay later companies don’t report to the credit bureaus, which leaves many buy-now, pay-later customers at a disadvantage.”
The warnings from Credit Karma come as government prepares for a regulatory clampdown on the sector after former FCA boss Chis Woolard last year warned of the urgent need for regulation.
Government closed a consultation on how to regulate the sector this month and new rules are expected to come into force at the end of this year.
Research from ClearPay this week showed that the firm’s BNPL products generated £739 million in incremental sales for UK merchants in 2021, while small-medium sized businesses enjoyed £124 million in new sales.