Analysis from the University of Edinburgh found that one in 10 public sector and NHS workers, initially turned down for a more conventional loan on the grounds that they could not afford to repay it, secured a buy-now-pay-later loan ( BNPL ) companies last year. The researchers also found that the overall use of BNPL products among public sector employees had “increased significantly” relative to other credit and loans, and that it had begun to displace other non-traditional lenders, such as those offering high-interest loans. Professor Tina Harrison, from the University of Edinburgh’s business school, warned that the growing use of BNPL – which is still unregulated in the UK – increased the risk of public sector workers falling behind on their payments. “The increase in BNPL usage, especially among people with very low financial resilience, is extremely worrying,” he said. “If left unchecked, BNPL has the potential to spiral into unmanageable debt very quickly.” BNPL companies such as Klarna, Clearpay and Laybuy have seen rapid growth during the pandemic as online shopping has boomed. While buyers are usually not charged interest on their purchases, they still run the risk of being overextended with debt and are not entitled to forbearance or compensation if things go wrong, as such companies are not yet regulated in the UK. Research released by Barclays Bank and debt charity Stepchange in June found that almost a third of BNPL borrowers said their loans had become unmanageable and pushed them into problem debt. Shoppers using such services paid for an average of 4.8 purchases – almost double the 2.6 purchases in February. The Edinburgh investigation looked at the transactions of 104,661 NHS and public sector workers who applied for a loan from not-for-profit lender Salad Money but were turned down on the basis that they were unable to meet the payments. Salad Money, which commissioned the research, grants loans exclusively to public sector workers. Analysis of 174 million anonymous bank transactions by public sector employees found evidence that 54% had experienced chargebacks – a key indicator of financial hardship. The head of Responsible Finance – an industry body that oversees the UK’s not-for-profit lenders known as Community Development Finance Institutions (CDFIs) – said it was “shocking” to see the rate of BNPL approvals among previously rejected loan applicants. “How can it make sense that if a responsible lender says ‘no, this loan is not affordable’, an under-regulated, well-funded technology darling can say yes?” said Theodora Hatzimichael. The findings were released as part of a report showing that many key workers would struggle to afford a surprise £100 mid-month bill because the staff whose transactions were analyzed had, on average, just £79 in their account. middle point. It also found that BNPL users spent more than they earned and tended to have higher overdrafts, while a significant minority were heavily indebted. While he said it was not possible to blame BNPL for these trends, the analysis found that its usage tended to increase over time.
