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(London, UK): The growth of Buy Now, Pay Later (BNPL) services among UK consumers has been consistent since 2016 when Klarna launched its partnership with Arcadia Group, bringing its product to mainstream retail. Today, over 17 million consumers have used BNPL services, including almost half (49%) of credit cardholders according to Auriemma Group’s latest issue of Cardbeat UK.

Despite the popularity and usage of this new wave of lending, BNPL agreements remain unregulated, and unlike credit card issuers, providers are not required to be authorised by the Financial Conduct Authority (FCA). However, new draft government legislation may soon change the readiness in which consumers can access and use BNPL services in order to reduce the risk of consumer detriment.

Indeed, some consumers are already experiencing some detriment due to their BNPL plans. According to Auriemma’s latest study, 37% of credit cardholders say using BNPL has created an additional burden on their finances, while a further 26% have been unable to afford essential purchases due to outgoings on BNPL repayments. According to the Bank of England, rising credit card borrowing could perpetuate this issue further, highlighting the urgency to reform the BNPL sector.

Almost one-third of those offered BNPL at online checkout never opt to learn more about the terms and conditions, and just 10% say they almost always click to find out more information, according to Auriemma’s Cardbeat UK.

“Our research shows that very few cardholders opt to learn more about terms and conditions when offered BNPL options at checkout,” says Jaclyn Holmes, Director of Research at Auriemma Group. “When large groups of consumers with this mentality toward borrowing aren’t required to pass affordability or credit worthiness checks, there’s greater risk on many of those consumer’s finances.”

What will the legislation mean for the likes of Klarna and other unregulated firms?

If the draft legislation is passed and the FCA takes action, firms such as Klarna could be required to make significant changes to their business such as applying to be authorised by the FCA, ensuring advertisements meet regulatory requirements and integrating rules around customer credit files and credit worthiness.

Does the legislation place regulated lenders in poll position to seize market share?

Though Klarna remains the top used BNPL service in the space, a wave of new entrants (many of whom are already subject to regulations) may threaten their stronghold. Several UK banks and lenders already have BNPL products in market, such as NewDay with NewPay, NatWest and Virgin Money. Moreover, regulated FinTechs such as Monzo and Curve joined the BNPL space in 2021, with Revolut following in 2022. Zopa recently acquired Divide Buy to enter the UK market with BNPL 2.0. 

However, for card issuers, establishing an entirely new BNPL business may not be needed to meet customer demand. Auriemma’s Cardbeat UK found that 44% of cardholders would be interested in monthly instalment plans attached to their existing credit card. A further 43% said they would be likely to enrol an in-person or online credit card purchase into an instalment plan if prompted by a push notification.

“Whether it’s building a BNPL solution or adapting existing lending tools to offer instalments, technology has enabled traditional lenders to become competitive in this space,” says Holmes. “This, in turn, could shore up the certainty around acceptable business models and future growth.”

Auriemma Group will continue to monitor this space closely in upcoming Cardbeat studies and within its Customer Service Roundtable groups.

Survey Methodology

This Auriemma Research study was conducted online within the UK by an independent field service provider on behalf of Auriemma in October 2022, among 80o+ adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.

About Auriemma Group

For more than 35 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.auriemma.group or call Jaclyn Holmes at +44 (0) 207 629 0075.

(London): Consumer satisfaction with credit cards has seen a steady increase since 2012, suggesting that the investments issuers have made in communicating the value and benefits of credit cards are paying off, according to Auriemma Group’s UK Cardbeat.® This syndicated online research publication was conducted in February 2015 among 442 UK cardholders. While the industry scored better for each of the factors measured, the improved satisfaction is mostly attributed to higher levels of trust in protecting information, and clarity surrounding credit card terms, signifying that recent efforts by banks have not gone unnoticed.

The Auriemma Industry Satisfaction Index (ISI) is a trended measurement of consumer satisfaction with credit cards, and has seen a stable rise over the past 4 years (69.6 in 2015 vs. 61.6 in 2012). While the industry posted an increase in each of the factors measured, the largest gains were among “I trust credit card companies to protect my personal information” (averaging 6.8 vs. 5.9 in 2012) and “Rules, terms and conditions are easy to understand(5.6 vs. 4.4 in 2012). While this higher rating demonstrates progress, there is still substantial room for further improvement in transparency by banks, which the Financial Conduct Authority (FCA) has prioritised since early 2014.[1] The organisation identified areas they believe are not working in the best interest of some consumers, and hope to build a detailed picture of the credit card market to identify which actions should be taken.

“Improving consumer education through easily-understood marketing has been a priority in the industry for quite some time, and it’s encouraging to see consumers are recognising the efforts that have been made,” say Marianne Berry, Managing Director of the Payment Insights practice at Auriemma. “Even before the FCA’s most recent push, banks were already headed in the right direction.”

The research shows additional signs of improved consumer knowledge, specifically regarding APRs. In 2012, less than one-quarter (22%) were able to indicate the interest rate on the outstanding balances on their most frequently used credit card. Over the past four years awareness has steadily risen, and the proportion has doubled to nearly half (45%). Among revolvers, the group most impacted by APRs, awareness is even higher, with 6 in 10 able to specify their interest rate.

Following a similar line of inquiry to the work the FCA is doing, Auriemma’s upcoming issue of UK Cardbeat® will focus on opportunities for consumer education and improvement. “Providing notification is no longer enough; we need to ask cardholders what aspects of financial education they want more of. Efforts tend to be unsuccessful without a thorough understanding of what the consumer hopes to learn, and by what means we can successfully deliver this information. Our forthcoming research aims to unveil just that” says Berry.

Survey Methodology

The study was conducted online within the United Kingdom by an independent field service provider on behalf of Auriemma Consulting Group in February 2015 among 442 credit card users (“cardholders”). The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted.

 About Auriemma Group

Auriemma is a boutique management consulting firm with specialised focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.

[1] http://www.fca.org.uk/news/credit-card-market-study

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