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21 July 2022updated 28 Jul 2022 5:14pm

How to create a responsible form of “buy now, pay later”

Consumers need reliable and safe financial services from trusted providers more than ever.

With the cost-of-living crisis dominating the headlines and thoughts of many people in the UK, the attraction of buy now, pay later (BNPL), an interest-free form of credit, is clearer than ever.

“It can be a helpful way to access special experiences, or make important purchases, while spreading the cost in a structured way,” says Martin Wise, managing director at NatWest Buy Now, Pay Later.  

NatWest has recently decided to move into the BNPL market in response to the changing needs of its consumers. “Many of our customers already use unregulated buy now, pay later services, and we want to provide them with a safer and more responsible alternative,” says Wise. 

The NatWest product will help customers to split the cost of a purchase across four payments, he explains. Coming from an established and trusted brand means it will be possible to use this buy now, pay later product at almost any retailer in the UK that accepts Mastercard. It is aimed at helping customers who can afford to make a purchase to do so immediately, and will potentially help them to better manage their cashflow with zero percent interest for four months.

The unregulated market poses real dangers for customers, with some BNPL operators coming in for criticism for encouraging “reckless” borrowing that gets people into debt. The debt charity Stepchange has been highlighting these risks for the past two years. Much of the focus for critics has been on the lack of affordability checks or when buy now, pay later is offered at the point of sale without it being clear that it is a form of borrowing.

“In part, it’s the failings that we’ve seen to date, and the potential for this to impact our customers, that has provided real impetus for us to launch this product,” Wise says. NatWest is different to others already in the marketplace because, as Wise says, “the core of our offering is to help our customers out, not catch them out”. The NatWest BNPL product will only be available to customers who can afford it, while there is a minimum spend for transactions to be eligible and a credit limit, and when using the service, customers will be fully covered, as they would be when purchasing with a credit card, and benefit from fraud protection checks.

“We’ve been very thoughtful about how we can ensure it doesn’t cause financial harm or encourage customers who are approved to use it to get into problem debt,” Wise continues. The system also has safeguards in place to block gambling transactions, for example.

NatWest is also helping customers by making repayments simple and straightforward. “As well as being able to track progress in their mobile app, alongside their day-to-day banking, there will be reminders to make sure customers can keep on track with payments,” Wise explains.

“BNPL is an important option that customers value, particularly in planning larger purchases in their lives,” he adds. “We all know this market will be regulated in the future and I think we are demonstrating how buy now, pay later can be provided responsibly.”

The main difference between NatWest BNPL and a traditional credit card is the former sets out a clear schedule of what the payments will be and when they need to be made. “This structure is something we know that customers really value – it’s not open-ended borrowing, and the customer can benefit from an automatic process for the borrowing to be repaid in four payments from a linked current account,” Wise says.

Wise and NatWest believe it is right that the government is looking at better regulation of the BNPL market and that more needs to be done to protect consumers. “We’d like to see better credit and affordability checks to help make sure customers don’t feel pressured into taking on debt they can’t afford, and that borrowing be properly reported at an industry level,” Wise says. That way, those institutions that offer credit can take an informed look at a customers’ circumstances – something that’s in the best interests of everyone.

BNPL is not for customers facing severe financial hardship, while NatWest has support measures in place to help individuals through the cost-of-living crisis. “In the first instance we would encourage customers who are finding things difficult to come and speak to us. We offer a check-in – a free, confidential discussion with a senior personal banker that can be done in a branch, online or by video banking,” Wise says. These check-in sessions help a customer to look at their income and outgoings and could signpost ways that they could save money on regular recurring payments.

“The lens I look at this through this is that we’re only offering BNPL to targeted customers who can afford it, and for them it is a great way to help spread the cost of planned purchases but also potentially unplanned but necessary ones,” Wise says. This could include important white goods, such as washing machines, where spreading the cost will help give people the peace of mind that the borrowing will be repaid.

The move from a “Wild West” of BNPL to a more considered and serious system with trusted providers supporting consumer choice and power with all of the necessary safeguards is something to be welcomed by consumers and industry alike.