In an unexpected move, NatWest has announced the closure of its buy now, pay later (BNPL) service less than two years after its launch. While citing a “clear demand” from customers for BNPL products at the initial launch in 2022, the bank now revealed that their service did not have the desired impact and uptake remained low as customers instead opted for instalment-based credit cards.
The surprising announcement has left many speculating whether we’re seeing the first decline in BNPL popularity and whether other banks and financial services providers with BNPL offerings will follow suit.
This article explores the history and current state of BNPL in Europe.
How does BNPL work?
While the principle instalment-based payments is far from new, companies like Klarna have introduced a boom in popularity for the offering thanks to easily offering interest-free micro loans to consumers.
If merchants partner with BNPL providers, customers can opt to pay later or in instalments, in which case the lender will pay the merchant, and the customer will pay the lender back the original money borrowed, often at no extra costs. BNPL providers can offer interest-free loans and still be profitable by charging the merchant fees rather than issue interest to customers.
BNPL providers like Klarna issue a on each transaction that is handled via its platform, which can range between 3 – 5.99% depending on the country and payment method used by the merchant.
What is the current state of the BNPL market?
The use of BNPL has soared in recent years: a third of UK adults have now used the services, rising to 40% among 18-34-year-olds. The surge in popularity is why many industry players, like NatWest in 2022, have decided to get involved and add their own BNPL offering.
This surge in popularity, and the following influx in BNPL providers, has led to an oversaturation of the market. “Although numbers have been growing, BNPL has become an incredibly crowded market in the last couple of years, as two providers were crowded out. Openpay collapsed last year and Zip exited the UK in 2022 after a major loss. So I wouldn’t be surprised to see more providers deciding it’s time to stop BNPL,” Liz Edwards, editor-in-chief at Finder.com, tells Payment Expert.
Yet while some BNPL offerings fail, others thrive. In 2023, Monzo announced that their BNPL offering, Monzo Flex, increased sixfold and represented more than 20% of its overall book (compared to 10% in 2022). Klarna, while still reporting a net loss for 2023, still grew revenues by 22% and had their biggest ever year in terms of Gross Merchandise Value.
In 2024, 93 million people are predicted to use the BNPL, and the BNPL industry is expected to account for $680 billion of global ecommerce transactions. But while the industry thrives, regulators are falling behind on introducing safeguards for customers.
Is BNPL regulated?
The BNPL sector remains largely unregulated on a global scale. While the EU has recently agreed on a new Consumer Credit Directive including BNPL products, the US and UK have yet to introduce regulatory proposals.
While the UK Treasury started its long-awaited consultation on FCA’s regulation of the booming BNPL sector, Sky News reported the plans were shelved in summer 2024 as some of the biggest players threatened to quit the UK market if they are subjected to “heavy-handed” regulation.
Additionally, a survey for the Centre for Financial Capability found that almost a quarter of Brits that have used BNPL services have been charged late payment fees. Additionally, over 25% of those who missed repayments reported having been contacted by a debt collection agency or had a decreased credit score as a result of their failure to pay.
Jane Goodland, one of the centre’s trustees, commented: “These figures reveal the ongoing prevalence of Buy Now, Pay Later schemes, and the dangerous financial risks that users face in this wild west unregulated market. As the ongoing cost-of-living crisis continues to impact the British public, it is apparent that many users are increasingly reliant on these schemes, without fully understanding the risks involved.
To compare, in the US BNPL is unregulated as well, and providers have also come under scrutiny from federal and state regulators in 2023. Previously, the CFPB issued a report which found that, among other factors, the overextension of the BNPL industry has the potential to cause extensive harm to consumers. The CFPB is expected to introduce US regulation for the BNPL industry in the near future based on these results.v
