The news: British buy now, pay later (BNPL) fintech Zilch partnered with debt advice charity StepChange to identify and support customers in financial distress, according to a press release.

• After customers are flagged for missing repayments, Zilch suspends their credit, and they are referred to StepChange for free advice.
• StepChange will also work with Zilch’s vulnerability team to improve the firm’s debt advice referral processes.
• Zilch will make donations to support the charity’s UK operations.

Why now? The UK’s cost-of-living crisis and the highest interest rates since 2008 are making it harder for consumers to repay debts.

• More than 3 million low-income households can’t afford to heat their homes, per the Joseph Rowntree Foundation.
• About 2.3 million households missed an essential payment in January—up 400,000 month over month, according to Which?.

This is pushing some shoppers to borrow more: Consumer debt rose by one-third in 2022, per the money.co.uk debt index. That’s helped boost the growth of flexible payment options like BNPL. But critics allege that BNPL exploits users and can increase debt problems.

• More than 2 in 5 UK BNPL customers borrowed money to make repayments, per Citizens Advice.
• BNPL also encourages users to spend more: It “causes a permanent increase in total spending of around $60 per week,” per a Harvard Business School working paper.
• Politicians slammed British supermarket Iceland for its BNPL offering, which it claimed would help shoppers pay for food.
• And consumer advocacy groups like Citizens Advice want more oversight to protect BNPL consumers.

Will it work? Partnering with StepChange can help Zilch’s customers manage their debt, and the fintech’s stance could win it new users and bolster its reputation. It could also keep Zilch ahead of impending legislation and cut the chance of FCA penalties.

However, needing to involve debt charities highlights BNPL’s major flaw: It can potentially exacerbate shoppers’ financial woes by normalizing unsustainable borrowing. And supporting struggling users won’t eradicate this problem.

Keep reading: Find out more about the challenges BNPL firms face in our Era of Uncertainty: Buy Now, Pay Later report.

This article originally appeared in Insider Intelligence's Payments Innovation Briefing—a daily recap of top stories reshaping the payments industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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