Buy now, pay later (BNPL) arrangements are growing exponentially in the UK, gaining traction amongst both consumers and businesses. Research by consulting firm Bain & Company found that BNPL is now used by 25% of e-commerce shoppers and 20,000 merchants in the UK.

These figures were shared in a new report titled Buy Now, Pay Later in the UK, which gives an overview of the country’s BNPL landscape, outlining the state of adoption and emerging trends.

According to the study, 2020 saw BNPL transactions totaling approximately GBP 6.4 billion, representing about 5% of the UK e-commerce market and an annual growth rate of a whopping 60% to 70%. That year, about 10.1 million people used BNPL, Bain & Company estimates, representing roughly 70% to 80% annual growth.

BNPL arrangements allow consumers to purchase goods or services and pay for them in installments over a period of time. BNPL has been around for a while, taking the form of point-of-sale (POS) finance and mail-order or catalog credit, and focusing primarily on allowing customers to make larger purchases. But it wasn’t until COVID-19 that their popularity shot through the roof as consumers looked to stretch their dollars and avoid taking on new credit card debt.

Popular BNPL options today like Klarna and Afterpay take the form of digital services that let people defer or stagger payment for a product at the time of purchase. The BNPL provider assesses creditworthiness in real time for each transaction then pays the merchant the purchase value and charge a service fee. The consumer then repays the BNPL provider in interest-free installments.

Unlike the original version of BNPL, these so-called BNPL 2.0 options are integrated into the checkout process, allowing for a seamless user experience, greater convenience as well as easier management through mobile apps and digital platforms.

For merchants, BNPL arrangements typically result in new customer acquisition, improved conversion rates and increased average ticket size. When customers visited a store, 57% of merchants using BNPL options polled by Bain & Company reported an increase in basket conversation and 46% witnessed an increase in average order value. Compared to card payments, purchases made through BNPL options could be 20% to 30% larger, the research found. 75% of surveyed merchants said that BNPL will a key part of their growth plan over the next year.

BNPL adoption varies across age groups and geographies

Compared to more mature markets like Sweden (23%), Germany (19%), Australia and New Zealand (10% each), adoption of BNPL arrangements in the UK is still limited, although it does exceed that of the US (2%).

Domestically, BNPL arrangements were found to be most popular amongst younger generations with many even adopting BNPL over traditional credit cards.

In the UK, Klarna is the best-known BNPL brand, with 54% of survey respondents having head of the company.

Swedish fintech giant Klarna is the world’s BNPL leader, serving some 90 million active consumers across 250,000 merchants in 17 countries. It’s the fourth most valuable private company in the world with a valuation of US$45.6 billion.

Other popular BNPL options in the UK include PayPal’s Pay in 3 offering, Clearpay (Afterpay’s UK brand), Laybuy, Openpay and Zip.

But the list is growing at a baffling rate: in September, neobanks Revolut and Monzo both announced plans to enter the BNPL market; Amazon is partnering with BNPL provider Affirm to offer BNPL arrangements; and Apple is working on launching its own BNPL scheme in collaboration with Goldman Sachs.

In the UK, the rapid rise of BNPL has prompted regulatory scrutiny. On October 21, 2021, the British government launched a consultation, seeking views on how to regulate BNPL products.

Proposals include rules governing how BNPL providers treat customers in financial difficulty, as well as the introduction of a statutory protection similarly to that of other regulated credit agreement. The government also said that it will working with the Credit Reference Agencies and the industry to find an appropriate way to report BNPL on consumers’ credit files.

The consultation will run until January 06, 2022.