While many BNPL options offer interest-free instalment payment options for consumers, the increasingly prevalent practice is a form of short-term credit and is regulated by the Central Bank.
If repaid on time, it can be a more cost-effective way to finance purchases and is cheaper than using a traditional credit card or personal loan.
However, two new studies published by the Central Bank point to potential issues, including that these loans are most popular with people who understand them least, and many do not know they are loans.
The first report, “Who Clicks ‘Pay Later’? Financial Vulnerability and Buy Now Pay Later Usage” by Anu Jose and Jane Kelly, found BNPL options are being disproportionately used in Ireland by those least equipped to manage the risks, raising concerns.
That includes borrowers with a history of being refused credit, of late loan repayments, of exhibiting low financial literacy and of over-confidence, they found.
Taking a nationally representative survey from Ireland, the researchers found that BNPL is used to a greater extent, more frequently and across multiple providers at a time by individuals with characteristics consistent with financial vulnerability.
They found 24pc of the survey sample reported using BNPL in the past 12 months. Among those, 30pc of users reported using BNPL more than five times and about one-third used more than one provider.
Colm Kincaid, deputy governor of the Central Bank of Ireland
Consumers with low financial literacy were 22 percentage points more likely to rely heavily on BNPL compared with those with high financial literacy.
A separate report, “Buy Now, Spend More, Pay Later: Behavioural Mechanics of Buy Now Pay Later Products”, found a sample group was more likely to spend more given access to the instalment repayment option.
The Central Bank said the findings highlight the need for clear information for consumers who do not understand the potential risks, including a bad credit record, that might affect getting a mortgage or other loan in future.
Central Bank deputy governor Colm Kincaid said shoppers should be aware they are covered by consumer protection rules and can complain to the Financial Services and Pensions Ombudsman, if needed.
The Central Bank will be issuing new requirements to BNPL providers next year, he added.
“What our new research shows is that some people are using BNPL without realising it is in fact a loan, and that failure to pay can carry significant costs and affect their credit record,” Mr Kincaid said. “We have also found that people who regularly use BNPL are significantly more likely to make a discretionary purchase they might not otherwise make.”
BNPL providers like Humm, Klarna and Revolut are relatively well established in the Irish market, especially since the Covid pandemic.
BNPL is typically offered as an interest-free option, letting shoppers split the cost of a purchase in instalments. Retailers pay a fee to the BNPL provider and credit is free to consumers unless they miss a repayment, in which case late fees and penalty interest apply.
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