At 74, Vivienne doesn’t look like your typical Klarna client.
The retired woman who has an interest in horse racing, has two adult children and four rescue animals, “likes the nicer things in life” – and uses buy-now, pay-later (BNPL) financing to pay for it.
The former British Airways flight attendant is a regular user of the platform and is part of a surge of older customers turning to BNPL funding.
Demand for BNPL increased in the UK, especially during the period maintenance costs crisis, but it is no longer driven solely by millennials born in the 1980s and early 1990s.
Instead, new research has shown that the fastest-growing group of users of deferred payment schemes are older generations and people with higher incomes.
In the UK, over a third (35.5%) of people said they had used BNPL in the last 12 months, according to financial experts Finder who surveyed 2,000 people across the UK in late January 2023.
And as the cost of living crisis continues to grip the UK, more than two-fifths (42%) of BNPL users said it was their first time doing so.
Once a niche form of credit, the use of BNPL has exploded in the UK after first gaining popularity following Klarna’s partnership with retailers – including online fashion giant ASOS – in 2015.
Founded in the early 2000s with the intention of being Swedish PayPal, Klarna gained international recognition with its BNPL feature.
First, as a “try before you buy”, it meant that millennials who didn’t have cash could shop online and then return anything that didn’t fit or was wrong without spending any money.
BNPL is currently a crowded sector with various brands such as Zilch and Laybuy vying for the credit of Klarna customers.
And with increasing financial pressures and soaring inflation, more and more customers are welcoming the ability to split payments into smaller, more manageable chunks.
But as BNPL is now available for everything from home appliances to takeaway pizza (it was added to Deliveroo in 2022) – older and more affluent customers are turning to it.
While people in their 20s and 30s are still at the top of the list of people using it, according to Finder, the fastest growing age group turning to BNPL is people over 55.
Nearly a fifth (18%) of people aged 55+ have used BNPL, and half of them started doing so in the last 12 months.
In Klarna, the fastest growing age group is now over 58. Previously, it was from 40 to 57 years old.
“You should be pretty smart about how much money you’re going to save at our age,” Vivienne said.
“I use them to buy luxuries that I would otherwise be waiting for at a sale, or raid my savings.”
Among these luxuries, Vivienne bought a £700 ‘super-glam’ outfit for Royal Ascot with them.
“I didn’t have that money, but over time I could afford it,” she said.
Common ground between Millennials and Boomers
Millennials and Generation Z remain the most likely to use BNPL overall, but those aged 45 to 54 are second most likely to have used BNPL for the first time in the last 12 months.
While BNPL’s recent popularity among baby boomers may seem surprising, the two generations have more in common than you might think.
Generational pensioners and their elderly people who do not have a mortgage face the problem that their housing does not always count towards their creditworthiness.
Peter Cartwright, 60, said that while he is “lucky” to have paid off his home, he now has no real lines of credit.
“I use it to maintain a good credit score,” he said.
“In the future, if I want to apply for a loan on something for a home or decide to apply for help to buy a home for my children, I will be rejected without a creditworthiness.”
Not all BNPL companies report to credit agencies or rating agencies – also known as credit bureaus – but more than half do, and the rest are expected to follow suit.
This means that using BNPL companies (including DivideBuy, Payl8er and Zilch) may affect your credit score.
This can be both positive – for consumers who are trying to improve their score through more traditional means – and it can put you at risk of ruining your score if you fall behind on your payments.
From fast fashion to big ticket items
But activists from the Financial Capacity Center have expressed concern about the growing demand among the elderly. Their data also showed that nearly 20% of people over the age of 65 used it last year – up from just 10% last year.
“BNPL was largely seen as a way to finance the fast-fashion habit of young people, but our research shows that this method of payment is now more used by the elderly and often for high-value items such as laptops and phones” Director OpenMoney CEO Hayley Millhouse said.
But she said it was “disturbing” to see two-fifths of users struggling to repay the resulting debt, with many turning to family and friends to make repayments.
Does BNPL encourage overspending?
Over a third (35.5%) of the UK have already used BNPL, a further 13% said they plan to use it in the future, according to Finder.
If successful, this would mean that nearly half of the population (48%) would use BNPL, based on a Finder survey.
However, concerns have been raised that the ease of BNPL could encourage people to spend more than they can afford.
“Using it probably means I spend more and can buy more stuff than I used to – but at least I can afford it,” Vivienne said.
Richard Lane of the debt charity StepChange said the sales packages that are going to retailers to convince them to use BNPL on their websites “speak really clearly about how they will get consumers to spend more by embedding buy now, pay later.
“Often this is done by providing much less friction when paying with BNPL than when using a debit card,” he said.
“When you can get something out so quickly, do you have a break? We’ve done a survey which suggests that many people who buy out, buy now, pay later, don’t even realize they’ve taken out a loan, don’t think of it as a loan or a debt.”
“No stigma” for older customers
Alex Marsh, head of Klarna UK, told Sky News responsible lending was key.
He said: “There are different scenarios where credit makes sense, whether it’s BNPL or a credit card.
“The bottom line for me is that it is offered responsibly so that the consumer can ultimately afford this credit and it supports what they are trying to achieve.”
He said Klarna’s average balance was around £70 and the loans were “usually of a short-term nature”.
It says BNPL is not structured the same way as traditional credit – you use it to purchase a specific item, which you then pay off, rather than adding to a “parent” credit card balance.
It also guarantees every purchase as a new loan, so every time a person adds to their balance, they check their credit score and how they’ve used Klarna in the past.
There are currently no late fees if you miss a payment from Klarna – something that will change on March 16 when the company introduces charges of up to £10 if you don’t pay.
Other BNPL platforms like Clearpay of Laybuy already have late fees.
As for who uses Klarna, he said it’s “not surprising” that the older and wealthier are turning to the platforms.
“Interest-free credit is something they’re used to and have always had access to,” he said.
“They don’t have the same barrier or stigma.”
Chris Edwards, 44, from south-east London, used BNPL schemes – such as PayPal Credit – to furnish his flat after moving.
“You spend all your money to buy a house and then you have nothing left to put anything into it,” he said.
“It’s incredibly useful.”
He also used BNPL to finance the holiday even though he had the money to pay for it all in advance.
“What it allows me to do is take a lump sum I have and put it in a short-term savings account to earn some interest,” he said.
“Money works for me while I still pay off debt.”
The road to regulation
Draft bills that would regulate BNPL’s services and give borrowers key rights and protections have already been published by the government, but the new rules won’t come into effect until months away.
The plans can protect up to “10 million consumers”.
The regulation, published on February 14, comes almost two years after the government said it would regulate the industry.
The eight-week consultation will look at how companies will need to comply with Financial Conduct Authority (FCA) rules, including how they will need to spell out key loan information for customers. Lenders will also be required to carry out checks to ensure that loans are affordable to customers.
Richard Lane of StepChange added: “We’re not saying buy now, pay later is fundamentally awful. This is not the case and we all use credit for our outliers – whether it’s getting a mortgage or making big expenses.
“Buy now, pay later is not a problem in itself, nor is a lot of credit.
“Our concern is that it is not regulated in the same way as other loans.”
Despite not yet being regulated by the FCA, the organization has already secured changes to unfair contract terms and issued warnings to BNPL companies against misleading advertising.
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Once the proposed scope and legal framework has been established, the FCA will consult on the rules that companies will have to follow.
A spokesperson for the FCA said it welcomed the start of government consultations: “As these products develop and become more widespread, there may be benefits for consumers, but there are also risks and potential harms.”