By: 4 April 2024

Industry experts suggest that it could be indicative of broader challenges faced by banks as they strive to remain competitive

Natwest to discontinue its buy now pay later scheme

Natwest recently confirmed its decision to discontinue its buy now pay later (BNPL) short term credit product. The move has sparked discussions among industry experts, with some suggesting that it could be indicative of broader challenges faced by banks as they strive to remain competitive in the rapidly evolving landscape of consumer finance.

Natwest only launched the product in 2022, and despite the bank having 18m customers in total it’s chosen to stop offering the short term credit product. This discontinuation will come into effect from May of this year.

Whilst the news is unexpected, it’s perhaps not surprising. BNPL is a contentious product, with some arguing it’s dangerous and predatory. As we spoke about in a recent article about BNPL, despite millions of BNPL transactions happening all over the world every day, nearly half (46%) of young people aren’t aware that they can get into debt through the product.

Indeed, the lack of regulation when it comes to BNPL has seen its rapid rise-and perhaps now its precipitous fall. Klarna, the leading BNPL, claim they alone handle two million transactions every day. However, it’s perhaps this availability that is causing problems. A study by Citizens Advice in the UK found that 42% of people who had used BNPL were using another form of borrowing, such as a credit card or a short term loan, to repay it.

Elliot Reader, senior vice president at investment bank Houlihan Lokey, said: “The trajectory of the buy now pay later market will be largely dependent on the level of regulation placed on the sector–a key discussion point between political parties at the moment, and a delicate balancing act between protecting consumers and providing them with access to suitable financial products.

“Whilst there is a recognition that regulation will happen in some form, the format of it will decide whether BNPL in its current form will remain a viable product to offer in the UK. The current delays to regulation continue to create uncertainty for the sector, and when larger banks and institutions are making decisions on where to invest – this uncertainty creates challenges.

“There is no doubt there is a consumer demand to service. However, 25% of UK BNPL users have been charged with late payment fees according to research by the Centre for Financial Capability, which indicates there is a need to either improve underwriting and affordability standards or educate borrowers on the potential implications and consequences of using such a product.

Fulfilling this consumer demand will remain an opportunity for lenders to be serviced through some form, but until the regulation is understood, it remains to be seen whether or not BNPL will sustain its popularity.”

Image: Firmbee.com on Unsplash 

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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.