Pay-later companies like Klarna and Block’s Afterpay could face tougher regulation in the UK
Nicholas Kocovlis | Nurphoto | Getty Images
Britain’s new Labour government is expected to announce updated plans soon to regulate the “buy now, pay later” industry, a government spokesman told CNBC.
A Treasury spokesman said the government would do so “shortly”, echoing comments made in Parliament on Wednesday by Tulip Siddiq, the UK Treasury’s new economic secretary.
“Regulating buy now, pay later products is critical to protecting people and providing certainty to the industry,” a Treasury Department spokesperson told CNBC in an email on Thursday.
Siddiq, who was named Britain’s new cities minister earlier this week following a landslide election victory for Keir Starmer’s Labour party, told MPs the new government “aims to work closely with all stakeholders and will be announcing its plans shortly”.
This follows multiple delays to the roadmap for BNPL legislation in the UK, with the government first announcing plans to regulate the sector in 2021. It follows an investigation by Christopher Woolard, former head of the Financial Conduct Authority, which found that more than one in 10 BNPL customers were falling behind on their payments.
BNPL plans are flexible credit arrangements that allow consumers to purchase items and repay the debt at a later date. Most plans charge customers one-third of the purchase price upfront, with the remaining payment made over the next two months.
Most BNPL companies make money by charging their merchant partners a fee per transaction rather than charging interest or late fees – some BNPL companies even charge unpaid fees – but this model is not standardized across the board.
The gap in service among BNPL lenders is one reason activists are calling for regulation, but the main reason is that consumers, especially younger ones, are increasingly taking on debt through these plans, sometimes across multiple lenders, without being able to repay them.
Gerald Chappell, chief executive of Abound, an online lender that uses consumers’ bank account details to make credit decisions, said data processed through its platform showed customers were borrowing “thousands of pounds” from three or four BNPL providers.
Chappell said that while BNPL could be seen as an “innovation” in credit, “it’s hard not to think that to some extent it was a product of a zero interest rate environment and now, in a rising interest rate environment, is it still sustainable?”
“The economy is weakening, defaults are rising, buy now, pay later is proliferating and debt burdens are increasing. So a lot of these companies are struggling and will continue to struggle.”
Chappell said he wouldn’t be surprised if the UK’s financial regulator, the Financial Conduct Authority, were to regulate the BNPL industry within the next 24 months.
Repeated Delays in BNPL Regulation
Executives at two major BNPL firms, Klarna and Block, opposed the proposed measures, saying they could push people towards more expensive lending options such as credit cards and car loan plans.
A spokesman for Clearpay, the UK arm of Afterpay, the BNPL division of the Jack Dorsey-owned fintech company, said it welcomed the update that the government is expected to make an announcement on BNPL regulation soon. block.
“We have always called for fit-for-purpose regulation of the industry that prioritizes customer protection and brings much-needed innovation to consumer credit,” a Clearpay spokesperson told CNBC in an email.
“Clearpay already has safeguards in place to protect consumers, but we recognise that not all providers take the same approach, which is why we continue to advocate for appropriate and proportionate regulation that sets high standards across the industry,” the spokesperson added.
A spokesman for rival BNPL company Klarna said: PayPaland Zilch were contacted by CNBC on Thursday but were not immediately available for comment.
BNPL loans are a largely unregulated part of the financial services ecosystem, not just in the UK but globally. In the US, the Consumer Financial Protection Bureau has said customers of BNPL companies should be offered the same protections as credit card users.
The regulator issued “interpretive rules” for the industry, which means BNPL lenders like Klarna, Affirm and PayPal must offer refunds for returned products or cancelled services, investigate merchant disputes, suspend payments while they investigate, and issue invoices that disclose their fees.
