UK Late Payments Surge 24% as Research Exposes Growing Divide in Consumer Lending

UK consumer lenders are facing a widening performance gap as late payments surge 24% across the market while the largest firms maintain stability. New research highlights that mid-market lenders are struggling with a significant rise in arrears, primarily driven by a slower adoption of embedded AI and automated collection technologies compared to their larger peers.

What was announced

A joint study from GoCardless and Aryza, based on a survey of 250 senior lending, collections, and risk leaders, reveals that the average proportion of late loan repayments in the UK has climbed from 9.3% to 11.5% over the last year. However, this headline figure masks a stark divide based on lender size. The largest institutions, defined as those with an annual turnover exceeding £250 million, reported that late payment rates remained nearly flat, moving from 8.7% to 8.8%.

In contrast, mid-market lenders with turnover between £25 million and £249.9 million saw late payments jump to 12.2%, representing a relative increase of up to 28%. The report attributes much of this disparity to "collections maturity." While 94% of all lenders claim to use AI in some capacity, only 29% have fully embedded the technology into daily operations. Among the largest lenders, 59% have achieved full AI integration, whereas only 21-23% of mid-market firms have done the same.

The research also identified motor finance as the most volatile sector, with late payments increasing 44% year-on-year to reach 14.1%. Unsecured personal loans and Buy Now, Pay Later (BNPL) providers also saw increases of 22% and 16% respectively. To combat these trends, 98% of surveyed lenders expressed interest in lender-initiated payments, and 44% indicated a desire to implement Recurring Pay by Bank as soon as the technology becomes available for their specific sectors.

"Adoption is widespread, but there is still a considerable gap between experimenting with AI and embedding it effectively into day-to-day collections. The opportunity for lenders is to focus on where technology and automation can genuinely increase capacity, support more personalised engagement and enable better customer outcomes, while ensuring human support remains available when it is needed."

Paul O’Sullivan, Global Head of Banking & Lending at Aryza

The companies involved

GoCardless is a prominent player in the direct bank payment space, specializing in direct debit and open banking payments to reduce friction for recurring transactions. The company is a subsidiary of the Dutch payments firm Mollie, following an acquisition that integrated its bank-to-bank payment infrastructure into a broader fintech ecosystem. GoCardless has positioned itself as a primary advocate for the transition away from card-based payments toward account-to-account (A2A) solutions, particularly in the UK and European markets.

Aryza is a global provider of financial software solutions, specifically focusing on the lending and debt recovery sectors. The firm provides platforms that automate the credit lifecycle, from initial lending applications through to insolvency and debt management. Together, the two companies represent the intersection of payment infrastructure and specialized risk management software, focusing on how automated data flows can improve the resilience of lending institutions during periods of economic volatility.

What FF News has reported before

GoCardless has been consistently active in expanding its technological footprint, recently moving into more advanced applications of artificial intelligence. In September 2026, FF News reported that GoCardless Debuts UK’s First Agentic AI Payments with Trussell Charity Partnership, marking a shift toward autonomous payment handling. The company has also focused on scaling its core repayment services, as seen when Clay Selects GoCardless To Streamline Loan Disbursements and Repayments at Scale in late 2025.

Further integration into vertical markets was evidenced when Strategic Imperatives and GoCardless Launch Automated End-to-End Billing for Telecoms earlier in 2026. These developments coincide with broader industry shifts, such as when the Chancellor Unveils Plans to “Supercharge” Growth of Innovative Financial Services Firms, creating a supportive regulatory environment for the types of open banking and AI-driven tools GoCardless and Aryza are championing.

What this means

The "efficiency divide" revealed in this data suggests that operational scale is no longer just about volume, but about the ability to fund and implement complex AI safety nets. Large lenders are effectively using automation to insulate themselves from macroeconomic shocks that are currently battering the mid-market. This puts mid-tier lenders under immense pressure; they face the same delinquency risks as the giants but lack the automated tools to manage them at scale without ballooning their headcount.

The sharp rise in motor finance arrears is a significant red flag for the broader credit market, suggesting that asset-backed consumer lending may be the first domino to fall in a tightening economy. The industry’s overwhelming interest in Recurring Pay by Bank indicates a lack of confidence in traditional card-based collections, which are often prone to failure due to expiry or cancellation. The move toward account-to-account payments is no longer a "nice to have" innovation but is becoming a core defensive strategy for risk departments.