BNPL or Buy Now Pay Later is said to have saved UK consumers half a billion pounds in credit card interest over a decade, according to an update from Klarna which claims it is now marking 10 years of savings.
Klarna, the AI-powered global payments network and shopping assistant, has announced new data showing that, is celebrating its tenth year in the UK this week.
Ten years ago, Klarna created the UK’s “modern” BNPL industry: short-term, interest-free installment credit. In a decade marked by rising credit card debt, Klarna’s BNPL solution has helped consumers avoid “nearly half a billion pounds in interest payments.”
This could have been a lot more, with credit card companies “raking in an eye-popping £160bn in interest payments over the past decade.”
British consumers have reduced their dependence on consumer credit “over the past ten years.”
The report from Klarna also mentioned that consumer debt is “now 12% of disposable income, its lowest level since 2000; this is mostly attributable to wider factors, in particular the lockdowns.”
But the increasing use of BNPL is helping consumers ditch “higher-risk forms of credit such as credit cards.”
A study by research consultancy Capital Economics found “that 1 in every 2 BNPL customers had reduced their credit card usage after discovering BNPL.”
In the 10 years since Klarna entered the UK market, consumer credit has grown “two times faster than credit card balances, suggesting a strong and steady shift away from credit cards.”
In the year to May 2024, UK consumers have reportedly spent £6.3bn using BNPL, up by 55% from £4.1bn in 2020. If this was spent on credit cards instead, Brits would “have spent an extra £118m in interest charges,” the update from Klarna claimed.
As well as “avoiding” potentially higher interest charges, BNPL customers now reportedly have lower outstanding balances, which they clear “more quickly, than credit card users.”
The average outstanding BNPL balance “was £150 compared with £1,295 for credit cards.”
While these numbers appear to suggest that BNPL is better than credit cards for assisting with financial wellbeing and stability, it’s worth noting that it is always best to carefully review the terms and conditions of any payments plan you use.
Many consumers are unable to figure out the best payment plans for their needs, mainly due to a low level of financial literacy. By educating ourselves about key financial terms and what they mean when committing to any payment plan, we will be in a much better position to determine the ideal solutions for our requirements, while avoiding excessive debt.