UK Government launches ‘buy now, pay later’ regulation consultation

HM Treasury has launched its long-awaited consultation into future ‘buy now, pay later’ regulation. 

The consultation, which closes on 6 January  2022, could have wide implications for a number of highly valued fintech firms.

BNPL has been one of the fastest-growing areas of fintech in 2021 with huge volumes of cash flooding into the sector. 

Growth among consumers in the UK has been stellar with the size of the market expected to grow 400 per cent this off the back off a tripling of the market in 2020.

With the high growth has come increasing expectations of fresh regulation, however. BNPL is currently lightly regulated through a loophole in the Consumer Credit Act, regulation dating from 1974.

Sebastian Siemiatkowski, co-founder and CEO of Klarna, one the best known and largest BNPL providers says the launch of the consultation is “a welcome step forward” in setting out plans for “proportionate regulation that’s in the interest of consumers and encourages innovation”.

He adds that “there are still bad products out there, so we are pleased that regulation is now clearly underway.” 

“Ultimately, this will drive consistency and improve outcomes for all consumers, especially as we see more traditional lenders entering the sector who, as we all know, have a long history of finding dirty tricks to keep their customers in debt by adding fees and charging high interest.”

“Done well, buy now pay later regulation will protect consumers, promote competition and choice, and position London as a world leader in fintech post-Brexit.”

Gary Rohloff, managing director and co-founder of Laybuy also welcomes the publication of the consultation by the Government.

“Following the Woolard Review earlier this year, it is positive to see that the Government continues to recognise that BNPL is a low-risk payment option and is bringing more choice and competition into the payments market for both consumers and businesses. I am also pleased to see the Government’s distinction between BNPL and other short-term credit products available on the market that do charge interest, often at high APRs, and are increasingly being placed or marketed alongside interest-free BNPL products. 

“It’s perhaps a smaller point, but we’re pleased that the Government addresses and recognises how BNPL is supporting smaller online traders. Introducing stricter rules [credit broking regulation] would have a severe impact on many of these companies.”

Rohloff adds that Laybuy too has always welcomed “proportionate regulation”.

“When we launched, we set out to be the most responsible BNPL provider and I’m pleased to see many competitors are beginning to follow our lead.” 

He says providers should be conducting effective creditworthiness checks, meaning, hard credit checks that show up on bureau reports. 

“I would be very suspicious of any BNPL or credit provider who believed this wasn’t in the interest of their customers and their own business. BNPL is becoming increasingly popular and I think it is only right we seek the highest standards across the industry,” he said. 

Matthew Upton, Director of Policy at Citizens Advice, a charity that has been a vocal critic of some aspects of BNPL says the charity’s, own research suggests over half of young people who have used Buy Now Pay Later in the last year struggled to make a repayment.

“Buy Now Pay Later borrowing can be like quicksand - easy to slip into and very difficult to get out of.” 

“The Buy Now Pay Later sector has grown incredibly quickly and we need consumer protections to keep pace. We welcome the Treasury’s commitment to regulate the sector. Now it must be swiftly translated into action.”

A spokesperson from BNPL provider Clearpay, currently in the process of being acquired by Jack Dorsey's Square, also said the company welcomed the consultation.

"We are encouraged that the Government is focused on the need for proportionate regulation that puts consumer protections at the heart, but does not stifle fintech innovation or consumer choice." 

"Consumer protections are at the core of our product, and we already go above and beyond many of the measures proposed by the Government. That’s why we welcome oversight by the FCA and the proposals in today’s consultation paper, such as allowing consumers to access the Financial Ombudsman Service."

"We note that the Government will work with the industry and credit reference agencies to identify an appropriate and workable solution to credit reporting, and look forward to demonstrating how on-time payment behaviour on Clearpay should be counted as a benefit to consumer credit scores."

You can find the full consultation details here.