Buy now, pay later companies such as Klarna and Block’s Afterpay may face tougher rules in the UK
Nicholas Kokovlis | Noor Photos | Getty Images
A spokesperson for the new British Labor government told CNBC that the new British Labor government will soon formulate an updated plan to regulate the “buy now, pay later” industry.
A Treasury spokesman said the government would do so “soon”, echoing comments made to parliament on Wednesday by Tulip Siddique, the new economics secretary at the Treasury.
“Regulation of buy now, pay later products is critical to protecting people and providing certainty to the industry,” a Treasury Department spokesman told CNBC via email on Thursday.
Earlier this week, Siddique, who was chosen as Britain’s new cities minister following Keir Starmer’s Labor Party’s landslide election victory, told lawmakers that the new government “wants to engage closely with all interested stakeholders” Cooperation and plans will be made soon.
Prior to this, the UK BNPL legislative roadmap had been delayed many times. The government formulates the 2021 industrial supervision plan for the first time. This follows a review by Christopher Woolard, the former director of the Financial Conduct Authority, which found more than one in 10 BNPL customers were in arrears.
The BNPL scheme is a flexible credit facility that enables consumers to purchase goods and then pay off the debt at a later date. Most plans charge customers one-third of the purchase value up front and then pay the remainder over the next two months.
Most BNPL companies make money by charging their business partners a fee on each transaction, rather than charging interest or late fees. Some BNPL companies do charge late payment fees. But the model is not standardized across the board.
Differences in service between BNP’s different lenders are part of the reason campaigners have been calling for regulation. However, a key reason is that people – especially younger consumers – are increasingly accumulating debt from these plans, sometimes from multiple providers, but are unable to afford it.
Gerald Chappell, chief executive of Abound, an online lending company that uses consumer bank account information to inform credit decisions, said he has seen data processed through the company’s platform showing customers from “Thousands of pounds” were received from as many as three or four BNPL providers.
Chappell said that while BNPL could be seen as a credit “innovation”, “I can’t help but feel that it was a product of the zero-rate environment. Now you move into a higher rate environment: is that still sustainable?” ?
“The economy is weak, credit defaults are increasing. The adoption of buy now, pay later is accelerating, which is also increasing the debt burden. So I think a lot of companies are struggling and will continue to struggle. “
Chappell said he would not be surprised if the Financial Conduct Authority, which is responsible for UK financial regulation, ends up regulating the BNPL industry within the next 24 months.
BNPL rules delayed multiple times
Executives at BNPL’s two main companies, Klarna and Block, have pushed back against the proposed measures, saying they could push people into more expensive credit options such as credit cards and car financing schemes.
A spokesman for Clearpay, the UK arm of Afterpay, said the company welcomed the government’s latest news and that it planned to announce news about BNPL regulation soon. Afterpay is the BNPL subsidiary of Jack Dorsey’s financial technology company clogged.
“We have consistently called for targeted regulation of the industry that prioritizes customer protection and delivers much-needed innovation in consumer credit,” a Clearpay spokesperson told CNBC via email.
“Clearpay has safeguards in place to protect consumers, but we recognize that not every provider takes the same approach. That’s why we continue to advocate for appropriate and appropriate regulation, with high industry standards across the board,” the spokesperson added .
A spokesman for BNPL competitor Klarna, PaypalZilch and Zilch had no immediate comment when reached by CNBC on Thursday.
BNPL lending is a largely unregulated part of the financial services ecosystem, not just in the UK but globally. In the U.S., the Consumer Financial Protection Bureau said customers of BNPL companies should have the same protections as credit card users.
The regulator published “interpretation rules” for the industry, meaning BNPL lenders such as Klarna, Affirm and PayPal must issue refunds for returned products or canceled services, must investigate merchant disputes and suspend payments while they are investigated, and must Provide a bill with disclosure of charges.
