Technological innovations and the increase in online transactions during the COVID-19 pandemic have accelerated the use of short-term online credit and credit-like products, including Buy Now Pay Later (BNPL).
These products, if used knowingly, can be useful for consumers facing a temporary income shortfall or to manage payments over a period of time. However, their use can lead to over‑indebtedness and contribute to the normalisation of debt accrual.
Only a minority of consumers taking out credit online understand concepts such as simple and compound interest. In 2023, on average across 39 economies worldwide, 28% of adults holding online credit understood simple and compound interest, and 35% scored the minimum target digital financial literacy score. Evidence from national surveys shows that many consumers are unaware of late payment fees linked to the use of BNPL.
Higher levels of digital financial literacy can raise awareness among consumers of the risks associated with using short-term online credit and credit-like products such as BNPL, and can provide them with the knowledge and skills to use them in safe and informed ways.
Policy makers and financial literacy stakeholders should address the characteristics and risks of short-term online credit and credit-like products, including BNPL, as part of financial literacy policies and initiatives, ensuring they reach individuals struggling financially and younger generations through just-in-time interventions before consumers access loans.
Supporting informed and safe use of short‑term online credit and Buy Now Pay Later through digital financial literacy
In the field of consumer credit, digital innovation has led to the emergence of new providers, new distribution channels and new products, including short-term online credit1 and credit-like products, including Buy Now Pay Later2 (hereinafter BNPL) (FinCoNet, 2024[1]). Whilst they have different characteristics (notably the fact that BNPL do not generally charge interest), these products can help consumers secure smaller amounts of finance, that can be repaid over shorter periods of time, compared to more traditional forms of credit. The use of these products has potential benefits for consumers, but their use can also contribute to possible negative consumer outcomes in certain circumstances and create new challenges from a financial literacy perspective.
Potential benefits for consumers...
Short-term online credit and credit-like products, including BNPL, can help consumers cover unexpected expenses, manage payments for goods over a period of time, or make ends meet when facing a temporary income shortfall. Moreover, their availability can prevent the most vulnerable consumers from using illegal lenders or borrowing from family/friends, thus preserving the security and privacy of their financial matters.
Credit-like products, including BNPL, can provide consumers with a cheaper alternative to more expensive forms of credit, such as credit cards or payday lending. Indeed, most BNPL products may come at no cost for the consumer if repaid on time, as they do not generally charge interest. They can also help consumers manage their spending by paying purchases through instalments. For example, almost 80% of BNPL users in the United Kingdom indicated that their use helped them to manage their finances (MaPS, 2023[2]).
... and possible negative consumer outcomes...
However, ease of access, use of certain marketing techniques, and simplified and fast lending processes can lead consumers to borrow excessively by repeatedly using short-term loans and credit-like products including BNPL (OECD, 2021[3]; 2019[4]). This can contribute to negative consumer outcomes, including over-indebtedness and the normalisation of debt accrual, particularly for individuals with a limited understanding of how these products work and low digital financial literacy.
Consumers using short-term online credit and BNPL excessively might persistently get into arrears, especially if they also borrow through other traditional credit products (OECD, 2019[4]; FinCoNet, 2024[1]; OECD, 2018[5]; O’Brien, Ramsay and Ali, 2024[6]). Evidence shows that BNPL users are more likely to also access other forms of credit and to have higher rates of borrowing than the rest of the population (Central Bank of Ireland, 2023[7]; CFPB, 2022[8]). For example, in the United Kingdom, almost a third (31%) of BNPL users reported that this had got them into problem debt (MaPS, 2023[2]), with the risk of over-indebtedness being particularly acute when consumers repay BNPL using credit cards (Guttman-Kenney, Firth and Gathergood, 2023[9]). Consumers might also be unaware of the negative consequences of missed payments, which determine late payment fees and can decrease consumers’ credit scores where credit‑like products, including BNPL, fall under regulatory frameworks similar to those applicable to consumer credit. For example, in the United Kingdom only 52% of BNPL users are aware of late payment fees, and only 50% know how much these fees might be before they incur them (Lending Standards Board, 2025[10]).
With regard to the normalisation of debt accrual, certain marketing practices and simplified online lending processes can increase the temptation to access credit without considering the consequences and contribute to an increase in impulse buying (OECD, 2018[5]). In particular, online purchases financed with BNPL satisfy instant gratification as the goods or services are received on the spot, whereas instalment payments follow (Gerrans, Baur and Lavagna-Slater, 2022[11]). For example, in both the United Kingdom and Ireland, users of BNPL reported spending more because of BNPL, with almost 90% of users in the United Kingdom reporting that BNPL changed their shopping habits (MaPS, 2023[2]; Central Bank of Ireland, 2023[7]).
While the use of short-term online credit and credit-like products such as BNPL can complement financial planning, their ease of access implies that using them can in some cases become a “substitute” for financial planning among consumers with low levels of financial literacy, as the amounts borrowed are relatively small and are often to be repaid in a short period of time. For example, in the United Kingdom, half of BNPL users declared having bought something they would have had to save for (MaPS, 2023[2]).
Results from the OECD/INFE 2023 International Survey of Adult Financial Literacy (OECD, 2023[12]), a global study coordinated by the OECD International Network on Financial Education covering 39 economies, show that the majority of adults who reported taking out credit completely online did not possess basic levels of financial literacy and digital financial literacy. Among the adults who reported taking out credit online, only 28% understood simple and compound interest and only 35% scored the minimum target digital financial literacy score (see Figure 1). Research indicates that individuals with lower levels of financial literacy are more likely to obtain financing at a greater cost, miss payments, or display self‑reported excessive debt burdens than those with higher levels of financial literacy (Lusardi and Tufano, 2015[13]; Gathergood, 2012[14]).
...which are more pronounced among certain groups of the population.
The possibility of negative consumer outcomes is more acute among certain consumers, such as those struggling financially and young people (Gambacorta and Pancotto, 2023[15]).
Individuals struggling financially are more likely to experience repayment difficulties due to multiple loans. Research indicates that payday loans can exacerbate financial hardship (Gathergood, Guttman-Kenney and Hunt, 2018[16]). For example, in Czechia, before the application of the revised Consumer Credit Directive (European Union, 2023[17]), around 80% of low-income payday loan borrowers rolled over or took out multiple payday loans because of financial difficulties (Finance Watch, 2022[18]). Evidence collected in 2022 in the United Kingdom showed that people were increasingly likely to use BNPL for day-to-day essentials (MaPS, 2023[2]).
Percentage of adults
Note: Taking out credit online includes all forms of credit accessed online, and not just short-term online credit. The target minimum digital financial literacy score is at least 70 out of a possible 100 points. Results for most countries presented in this figure refer to adults with internet access. Results for Croatia, Estonia, Jordan, Luxembourg, Mexico, Poland and Romania (indicated with an asterisk) refer to all adults, as surveys in those countries did not ask about internet access.
Source: Analysis of the data collected as part of the OECD/INFE 2023 International Survey of Adult Financial Literacy (OECD, 2023[12]).
Teenagers and young adults might be more vulnerable to the risk of normalising debt accrual. For example, in Germany, 44% of young people aged 16-25 and 38% of those aged 16-17 used credit-like products such as BNPL (SCHUFA, 2023[19]). In the United Kingdom, the majority of BNPL users in 2022 were under 40. Among 18 to 24-year-olds surveyed, 54% expected to take out a loan over the next year, a 6% increase compared to the previous year (MaPS, 2023[2]).
Financial literacy can help consumers use finance responsibly through appropriate budgeting and saving, and through awareness of the risks and characteristics of different financial products, including short-term online credit and credit-like products such as BNPL. As a result, greater (digital) financial literacy can contribute to minimising consumer detriment.
Box 1 presents selected examples of financial literacy initiatives on short-term online credit and credit-like products such as BNPL.
Table 1 provides an overview of the main financial competencies that consumers should ideally have to safely use short-term online credit and credit-like products such as BNPL, based on the Financial competence framework for adults in the European Union (European Union/OECD, 2022[20]). The framework promotes a shared understanding of the financial competencies adults need to make sound decisions when it comes to digital credit, and should inform the design of public policies, financial literacy programmes and educational materials.
In Canada, the Financial Consumer Agency of Canada addresses BNPL as part of the information provided to consumers on its website, and several financial sector stakeholders raise awareness about BNPL, including financial sector regulators in the Provinces, and credit counselling agencies.
In India, the National Centre for Financial Education (NCFE) targets youth and young graduates who could be more exposed to short-term online credit in its initiatives and workshops. The focus is on the importance of credit discipline and maintaining a good credit score, the advantages of entering into credit contracts with formal institutions rather than informal ones, as well as on avoiding impulse buying.
In Ireland, the Competition and Consumer Protection Commission (CPCC) regularly updates the financial education programmes and information on its website to educate consumers on credit agreements such as hire-purchase and BNPL. The CPCC also organises public information campaigns on borrowing, with a specific focus on BNPL.
In Lithuania, the Bank of Lithuania publishes and updates information about consumer credit on its website, and addresses this as part of its routine meetings with banks and consumer associations to help them address these topics with consumers.
In Ukraine, the National Bank of Ukraine has addressed issues related to short-term online credit and BNPL in several episodes of the TV series "Friendly digital finance" and "10 questions for a financial coach".
Source: (European Union/OECD, 2022[20]), Financial competence framework for adults in the European Union, https://www.oecd.org/finance/financial-competence-framework-for-adults-in-the-European-Union.htm
Higher levels of digital financial literacy can help consumers understand the benefits and risks associated with using short-term online credit and credit-like products, including BNPL. Policy makers, regulators and other stakeholders should address the characteristics, benefits and risks of short-term online credit and credit-like products, including BNPL, as part of broader financial literacy policies and initiatives. These should complement financial consumer protection frameworks. Such frameworks should address significant consumer risks in relation to online consumer credit products, and encourage the design of quality online credit products that support individual financial well-being (OECD, 2022[21]; 2019[22]).
Policy makers and other stakeholders working on financial literacy and education should promote effective initiatives that enhance financial literacy on online short-term credit and BNPL. In doing so, it is important that they co-operate with relevant stakeholders, such as civil society organisations working with groups at risk of over-indebtedness, financial services providers and FinTechs.
Policy makers and other stakeholders working on financial literacy should consider the following actions:
Raise awareness among consumers that certain marketing practices and simplified online lending processes can increase the temptation to access credit without considering the consequences (OECD, 2018[5]), contributing to over-indebtedness and the normalisation of debt accrual.
Address the benefits and risks of online short-term credit and credit-like products including BNPL as part of financial education initiatives, particularly those addressed to individuals who are struggling financially and younger generations.
Focus on the development of specific financial literacy competencies to help consumers understand the implications of the use of online credit products, their characteristics and risks (European Union/OECD, 2022[20]).
Consider delivering financial education via just-in-time interventions before consumers access loans. This approach can equip consumers with the necessary knowledge to make informed decisions, reducing the likelihood of costly financial mistakes.
Reinforce broader financial education on budgeting, financial planning and saving.
Prompt consumers to take action to monitor their overall online credit use, taking into account all outstanding loans, including those accessed through traditional means (OECD, 2018[5]; 2019[4]).
References
[7] Central Bank of Ireland (2023), Consumer Research Bulletin Buy Now Pay Later Consumer Insights Update, https://www.centralbank.ie/docs/default-source/publications/consumer-protection-research/consumer-research-bulletin-buy-now-pay-later.pdf?sfvrsn=7ed49d1d_6 (accessed on 8 May 2024).
[8] CFPB (2022), Buy Now, Pay Later: Market trends and consumer impacts, https://files.consumerfinance.gov/f/documents/cfpb_buy-now-pay-later-market-trends-consumer-impacts_report_2022-09.pdf (accessed on 8 May 2024).
[17] European Union (2023), Directive (EU) 2023/2225 of the European Parliament and of the Council of 18 October 2023 on credit agreements for consumers and repealing Directive 2008/48/EC, http://data.europa.eu/eli/dir/2023/2225/oj (accessed on 10 July 2024).
[20] European Union/OECD (2022), “Financial competence framework for adults in the European Union”, https://www.oecd.org/finance/financial-competence-framework-for-adults-in-the-European-Union.htm (accessed on 28 April 2022).
[18] Finance Watch (2022), Tackling causes of over-indebtedness in the EU consumer credit market, https://www.finance-watch.org/wp-content/uploads/2022/03/CDD-consumer-credit-directive-rootcause-overindebtedness.pdf (accessed on 15 January 2025).
[1] FinCoNet (2024), Briefing note: Buy Now Pay Later, https://www.finconet.org/resources/FINAL%20FOR%20PUBLICATION%20-%20FinCoNet%20SC2%20-%20BNPL%20Briefing%20Note.pdf.
[15] Gambacorta, L. and L. Pancotto (2023), “Buy now, pay later: a cross-country analysis”, https://www.bis.org/publ/qtrpdf/r_qt2312e.pdf (accessed on 15 April 2025).
[14] Gathergood, J. (2012), “Self-control, financial literacy and consumer over-indebtedness”, Journal of Economic Psychology, Vol. 33/3, pp. 590-602, https://doi.org/10.1016/J.JOEP.2011.11.006.
[16] Gathergood, J., B. Guttman-Kenney and S. Hunt (2018), “How Do Payday Loans Affect Borrowers? Evidence from the U.K. Market”, The Review of Financial Studies, https://doi.org/10.1093/rfs/hhy090.
[11] Gerrans, P., D. Baur and S. Lavagna-Slater (2022), “Fintech and responsibility: Buy-now-pay-later arrangements”, Australian Journal of Management, Vol. 47/3, pp. 474-502, https://doi.org/10.1177/03128962211032448.
[9] Guttman-Kenney, B., C. Firth and J. Gathergood (2023), Buy Now, Pay Later (BNPL) ...On Your Credit Card *, https://financialservices.house.gov/events/eventsingle.aspx?EventID=408594.
[10] Lending Standards Board (2025), Consumers lack awareness of the costs of BNPL, says the LSB, https://www.lendingstandardsboard.org.uk/consumers-lack-awareness-of-the-costs-of-bnpl-says-the-lsb/ (accessed on 8 April 2025).
[13] Lusardi, A. and P. Tufano (2015), “Debt literacy, financial experiences, and overindebtedness”, PEF, Vol. 14/4, pp. 332-368, https://doi.org/10.1017/S1474747215000232.
[2] MaPS (2023), Buy Now Pay Later: a review of the market, risks and trends, consumer understanding, impact and outcomes.
[6] O’Brien, L., I. Ramsay and P. Ali (2024), “Innovation, Disruption and Consumer Harm in the Buy Now Pay Later Industry: An Empirical Study”, University of New South Wales Law Journal, Vol. 47/2, https://papers.ssrn.com/abstract=4635958 (accessed on 15 April 2025).
[12] OECD (2023), “OECD/INFE 2023 International Survey of Adult Financial Literacy”, OECD Business and Finance Policy Papers, No. 39, OECD Publishing, Paris, https://doi.org/10.1787/56003a32-en.
[21] OECD (2022), Recommendation of the Council on High-Level Principles on Financial Consumer Protection, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0394 (accessed on 24 April 2023).
[3] OECD (2021), G20/OECD-INFE Report on Supporting Financial Resilience and Transformation through Digital Financial Literacy, http://www.oecd.org/finance/supporting-financial-resilience-and-transformation-through-digital (accessed on 27 June 2022).
[22] OECD (2019), Recommendation of the Council on Consumer Protection in the field of Consumer Credit, http://legalinstruments.oecd.org (accessed on 8 February 2024).
[4] OECD (2019), Short-term Consumer Credit: Provision, regulatory coverage and policy responses, https://www.oecd.org/daf/fin/financial-education/Short-term-consumer-credit-report.pdf (accessed on 21 June 2022).
[5] OECD (2018), G20/OECD INFE Policy Guidance on Digitalisation and Financial Literacy, https://www.oecd.org/finance/G20-OECD-INFE-Policy-Guidance-Digitalisation-Financial-Literacy-2018.pdf (accessed on 28 April 2022).
[19] SCHUFA (2023), Jugenfinanzmonitor 2023, https://www.schufa.de/ueber-uns/presse/pressemitteilungen/schufa-jugend-finanzmonitor-2023/.
OECD (2020), Recommendation of the Council on Financial Literacy, OECD/LEGAL/0461, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0461
OECD (2012), G20/OECD High-Level Principles on Financial Consumer Protection 2022, OECD Publishing, Paris, https://doi.org/10.1787/48cc3df0-en
OECD (2019), Recommendation of the Council on Consumer Protection in the field of Consumer Credit,
OECD/LEGAL/0453, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0453
OECD (2023), "OECD/INFE 2023 International Survey of Adult Financial Literacy", OECD Business and Finance Policy Papers, No. 39, OECD Publishing, Paris, https://doi.org/10.1787/56003a32-en
Andrea GRIFONI (✉ andrea.grifoni@oecd.org)
OECD International Network on Financial Education (✉ SecretariatINFE@oecd.org)
This note was developed as part of the programme of work of the OECD International Network on Financial Education (OECD/INFE). The note benefitted from the discussions during an online workshop organised by the OECD/INFE on 24 October 2023. Speakers included Prof. John Gathergood, Professor of Economics and Associate Pro-Vice Chancellor for Research and Knowledge Exchange in the Faculty of Social Sciences, University of Nottingham, United Kingdom; Prof. Paul Gerrans, Professor of Finance at The University of Western Australia, and member of the OECD/INFE Research Committee; Lilly Aaron, Senior Policy Manager, Money and Pensions Service (MaPS), United Kingdom; and Dr Bobby Stuijfzand, Head of Online Experiments and Data Science - Behavioural Insights Team (BIT), United Kingdom.
← 1. The practice of lending online to consumers amounts of money that are small relative to other forms of credit in the market, for short periods of time (most commonly for durations of under 12 months), at a rate that is considered to be high compared with other credit products available to consumers in their jurisdiction (OECD, 2019[4]).
← 2. A financial service, usually offered during the checkout process, that allows a customer to receive a good or service immediately but fully defer the payment or pay for it in instalments. The customer often, though not always, does not pay additional fees or interest charges if the instalments are repaid on time and in full. Generally, it involves a tri-partite transaction among the consumer, the merchant and the BNPL provider (FinCoNet, 2024[1]).