One of the key figures coming out of the record UK online Christmas spending released earlier this week by Adobe Analytics was that 13.9% or £3.6bn of payments came through buy now, pay later providers
Speaking about the results, which covered November through December, Adobe Digital Insights director Vivek Pandya said “We’re anticipating [growth] continuing as more of these buy now, pay later (BNPL) players make the services more well known.”
Some of this growth appeared to be concentrated among certain providers. The number of orders processed on Black Friday by Klarna was up by 28% (Adobe’s figures showed a 15.6% growth in BNPL spending for the day).
The strength of the UK market
Consumer appetite for BNPL services has drawn more and more retailers and providers into the market over the last few years. Market leaders Klarna, Clearpay and Paypal were joined in the UK by American operator Affirm late last year, who kicked things off with a partnership with travel provider Alternative Airlines.
“Given our ability to support a broad range of transaction types, especially higher ticket items with longer payment terms like travel, we see tremendous opportunity for Affirm in the UK,” said Affirm UK country manager Ruth Spratt.
New retailers to enter the BNPL market at Christmas included John Lewis, whose director of credit and banking Andy Piggott said at the time “we’re committed to making it easier for customers to manage their budgets with a range of flexible and secure ways to pay”.
“We welcomed thousands of new merchants last year, including Argos and John Lewis, and 2025 is shaping up to be even bigger,” said Klarna head of western, southern Europe, UK & Ireland Raji Behal .
According to WorldPay data, the UK is roughly in the middle of the European pack in regards to the share of ecommerce running through BNPL providers. On the other hand, the UK is a market with particularly high levels of online retail spending compared to European peers.
Sweden, the home of Klarna, tops the list for the highest share of ecommerce being paid for through BNPL. The technology has even encouraged lending-averse Germans to embrace consumer credit. In both countries, BNPL accounted for over a fifth of ecommerce transaction values in 2023, according to WorldPay.
Providers have typically marketed themselves as alternatives to credit cards, touting features like no late fees and zero-interest payments as differentiators. Credit card spending is still on the up, according to Bank of England data, but growth now seems to be normalising to pre-pandemic levels after a post-lockdown surge.
In October, HM Treasury announced it was launching a consultation ahead of bringing legislation ahead of parliament. The draft bill suggests bringing BNPL providers under the supervision of the Financial Conduct Authority (FCA), which would allow the FCA to apply rules designed to ensure that any lending is affordable
Why is it growing?
Pandya says that there are multiple reasons that BNPL continues to be leaned on by the consumer.
“You have some consumers who maybe have to do a good amount of shopping through the holiday season. This consumer could be financially strained and leaning on BNPL to help them get through the festive season.
Another consumer, trending younger and regularly using social media apps is more likely to use BNPL because of its easy integration into the checkout process. “They see a smaller amount there at the checkout and they say, well that’s actually pretty appealing to me” adds Pandya.
One interesting contradiction in the Adobe Analytics numbers was that sales hit a record level despite clear evidence of increasingly price-sensitive consumers. Many UK shoppers waited for big discounts before committing to spending, with that price sensitivity driving an additional £220m in spending across the festive season.
Research released late last year by Imperial College Business School based on customers of a US retailer showed that the probability of a purchase increased when BNPL was offered as well as the average transaction value.
“On average, after introducing a BNPL option, the probability of purchase increases by about nine percentage points and, when customers make a purchase, basket sizes are about 10% larger,” wrote the report’s author Dr Stijn Maesen, who also found that these changes persisted for the 26-week length of the study.
What are people buying?
Affirm’s launch with Alternative Airlines reflects the growth levels that some BNPL providers are seeing in travel and entertainment. Its US data showed a 40-50% uplift in travel spending across Cyber Weekend.
Research in 2023 suggested that more than one in 10 UK BNPL users paid for their groceries with BNPL, with that share increasing to 35% among regular users of the technology.
Pandya affirms that Adobe did indeed see a tick-up in BNPL usage for food in 2022 as inflation saw food prices surge. However, now most of the growth tends to be on larger ticket items.
“What we find is it tends to be heavy on the electronics front, some high-end luxury apparel items – they tend to go through BNPL.”
It is unclear what kind of impact greater regulation will have on the BNPL market and whether this might push some of these trends in different directions. The HM Treasury consultation was welcomed by Klarna and Clearpay.
We should find out sooner rather than later, with the government hoping to put final legislation before parliament sometime early this year, with the idea that rules would come into force in 2026.
That means another Christmas with rules as they currently stand. All signs currently suggest that it is likely to be another record-breaker.
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