BNPL is growing strongly in Germany

Buy now, pay later (BNPL) is experiencing significant growth in Germany, especially among young consumers. Schufa has reported a 30 percent increase in BNPL usage in just one year. The credit agency warns about the risks associated with deferred payments.

In challenging economic times, many buyers are finding it appealing to shop and postpone payments until their next paycheck. BNPL providers like Klarna and Ratepay offer financing options without additional charges.

9.1 million contracts

Last year, Germany saw a substantial surge in newly signed installment loan contracts, with Schufa reporting over 9.1 million contracts, marking a 30 percent increase from the previous year. While the majority of these loans are being repaid as agreed (97.9 percent according to Schufa), the rising price levels are making it increasingly difficult for consumers to meet their financial obligations, depleting their reserves.

Small loans

The trend is leaning towards small loans, with over 3.8 million of the 9.1 million new contracts last year being for amounts under 1,000 euros. This means that 42 percent of new contracts in Germany fall within this range. Consumers typically borrowed an average of 356 euros, down from 398 euros the previous year, as indicated in Schufa’s recently published Risk and Credit Compass.

The average loan amount dropped to 356 euros

Online retail

Schufa board member Ole Schröder has cautioned against financial strain, especially among young people, who are increasingly using the option to pay for purchases in installments in online retail. The number of small loans under 1,000 euros as of December 31, 2022, has significantly risen among individuals aged 20 to 39, with year-over-year growth exceeding 50 percent.

Schufa warns against financial strain

Schufa notes that online shoppers tend to prioritize quick purchases, often considering the financing options as cost-effective due to the relatively small amounts involved. However, detailed calculations are rarely performed. “Even the repayment of many small loans can quickly lead to financial overload”, Schröder states. “So, taking advantage of BNPL offers requires a certain level of financial literacy and payment discipline from consumers and responsible lending from providers.”

BNPL-trend

BNPL is also on the rise in other European countries, where it reportedly has contributed to increased online spending. For example, in the UK, shoppers spent 1.7 billion euros through these services last July. Meanwhile, Zalando is pioneering an alternative ‘save now, pay later’ approach.