Creditspring chief calls for more regulation in the industry

Neil Kadagathur says: "regulation of BNPL is absolutely essential, and can’t come soon enough"

Neil Kadagathur, chief executive officer of FCA-regulated lending firm Creditspring, has called for more regulation in the buy now pay later (BNPL) industry, saying it’s long overdue and that the UK is sitting on a potential timebomb of young people facing debt without understanding how or why they got into it. 

His comments come following research published by Creditspring in their fourth Financial Stability Tracker. They surveyed 2,000 UK adults and found that: 

• almost half (46%) of young people (those aged 18-34) don’t know they can get into debt using BNPL products
• almost four in ten (36%) young people using BNPL at least once a month
• 46% are also unaware that BNPL lenders can add fees for missed payments

BNPL is becoming more and more popular. Swedish firm Klarna, one of the biggest names in the industry, handles over 2 million transactions per day across 45 countries. Indeed, they’re due to go public in Q3 of this year and are aiming for a valuation of $20bn. 

According to research by Pyments, 53% of consumers have increased their usage of BNPL year on year, with more consumers turning away from traditional payment methods. Research by Boku has found that the value of card payments in 2023 was just 31% of all transactions, and predicts this will fall to 19% by 2028. 

Kadagathur’s comments highlight a huge problem in the BNPL industry. Just a fifth of young people know that these products remain unregulated, which is a stark warning to providers as they’re the biggest user of the products. BNPL is now the second most common form of borrowing amongst young people, after credit cards. 

Almost half (46%) of young people are also unaware that BNPL lenders can add fees for missed payments, with the same proportion (46%) unaware they could also be referred to a debt collector. Research from the Centre for Financial Capability shows that nearly a quarter of Brits that have used BNPL have been charged late payment fees. 

One of the biggest potential concerns for young people is the lack of accountability. Nine in ten (88%) don’t know that they can’t complain to the Financial Ombudsman about an issue with BNPL due to it being unregulated. 

With around 6.7 million young people across the UK not knowing that using buy now pay later (BNPL) can lead to debt, Kadagathur is concerned. He said: “The UK is sitting on a ticking BNPL timebomb–millions of young people are unknowingly putting their financial future at risk by piling up BNPL debt. 

“There is a huge knowledge gap when it comes to BNPL – this is driven by lenders who continue to offer a lack of transparency, confusing repayment terms and hidden costs. BNPL lenders need to step up and take responsibility for tackling the misconceptions that still exist about the risks of using these products. 

“Regulation of BNPL is absolutely essential, and can’t come soon enough. Plans to bring the BNPL market to heel have been delayed for far too long, which has led to increased confusion and ultimately punished borrowers. The regulator needs to push through this much-needed legislation as a priority.” 

Deby charity StepChange has also revealed a concerning correlation between use of BNPL and financial difficulty. Its recent polling showed that those with BNPL debt are three times more likely to be in problem debt (23%) than UK adults (8%). 

Simon Trevethick, head of communications at StepChange, said: “Our research reveals a worrying crossover between use of buy now pay later and financial hardship, but also that BNPL use is becoming much more common. With living costs stretching household budgets, there’s a concern that people are relying on credit like BNPL to make ends meet, which presents as more of a risk as it’s not regulated in the same way as other types of consumer credit. 

“With BNPL remaining unregulated, there’s a lack of consistency across the sector, meaning affordability checks can be patchy, as can consumer understanding. Younger people who may have less financial experience can be more vulnerable to falling into problem debt after using BNPL – especially as at checkouts it’s not always clear that BNPL is a form of borrowing. Regulating the industry is long overdue and we urge the government to follow through on its commitment to do so as soon as possible.”

Image: Neil Kadagathur LinkedIn

Robert Welbourn Robert Welbourn is an experienced financial writer. He has worked for a number of high street banks and trading platforms. He's also a published author and freelance writer and editor.