NatWest to enter the buy now, pay later market

NatWest is set to be the first UK high street bank to enter the buy now, pay later (BNPL) market when it launches a product this summer.

BNPL options often appear at online checkouts, offering shoppers the chance to split their shopping purchases into several repayments without paying interest on their borrowing.

NatWest said its new proposition will give its customers the convenience to make a purchase almost anywhere that accepts Mastercard. 

However, the buy now, pay later industry has come under criticism, and is still not regulated in the UK. Providers include Klarna, Clearpay and Openpay. Thousands of retailers accept BNPL, from M&S and Ikea to Adidas and Wayfair.

It can be tempting to overspend with BNPL, and you may incur fees and a black mark on your credit file if you’re late with repayments. Many users are unaware of the risks, and don’t realise they are taking on debt, according to research by consumer group Which?

NatWest said it would put safeguards in place to help ensure lending is affordable. For example, spending categories, such as gambling, cash advances and balance transfers, will be excluded.

The new scheme will initially be made available for NatWest customers, with plans to roll it out to customers of Royal Bank of Scotland and Ulster Bank, which are part of the same group, later in the year.

The new proposition will offer clear, structured repayments, credit scoring and affordability checks, NatWest said.

It will offer a fixed credit limit, of between £500 and £1,000, which the customer will know in advance. Shoppers will be able to keep track of payments and see how much they owe via NatWest’s mobile app.

David Lindberg, chief executive of retail banking at NatWest, said: “There’s a clear demand for buy now, pay later and we are determined to make it better and safer.

“We have listened to our customers and are excited to provide them with a proposition that gives them greater flexibility to manage their finances.

“Customers told us they value fraud protection on purchases and useful tools and reminders to help them budget. They also like the convenience of managing buy now, pay later purchases alongside their other NatWest accounts in our award-winning app.”

The use of BNPL nearly quadrupled in 2020, amounting to £2.7 billion, as the pandemic drove online shopping.

NatWest added that it has introduced several features on its app to help improve customers’ financial capability, including a free “know my credit score” feature and “round ups” that automatically transfer small amounts of money when people spend into their savings.

What are the risks of BNPL?

The BNPL sector has expanded rapidly in recent years, sparking concerns that some people may quickly build up debts that they cannot afford to pay back.

Barclays recently published research that found nearly a quarter (24%) of BNPL users are concerned about their ability to repay such bills.

The Financial Conduct Authority is expected to start regulating the industry later this year. It has already ordered three providers to refund borrowers who were charged late fees in particular circumstances. It has also told providers to amend terms in the contracts that were unfair or unclear.

Additional reporting by PA