Advertisement
The UK’s new Labour government is preparing to unveil updated regulatory plans for the “buy now, pay later” (BNPL) sector, a move anticipated to address the growing concerns around these financial products.
A Treasury department spokesperson confirmed that the government will outline its regulatory approach “shortly,” echoing comments from Tulip Siddiq, the new economic secretary to the UK Treasury. Siddiq emphasized the importance of regulating BNPL products to safeguard consumers and provide clarity for the industry.
The push for regulation comes after several delays. The government initially proposed regulating BNPL services in 2021, following a review by former Financial Conduct Authority (FCA) chief Christopher Woolard, which highlighted that over 10% of BNPL customers were in arrears.
BNPL services allow consumers to purchase items and pay later, often with a third of the purchase price upfront and the rest in subsequent months. Providers typically earn revenue through fees charged to merchants rather than interest or late fees, though some do charge for missed payments.
The lack of standardized practices among BNPL providers has raised concerns, particularly as more consumers, especially younger ones, accumulate debt from multiple BNPL providers. Gerald Chappell, CEO of online lending firm Abound, noted that some customers are accumulating substantial debt from several BNPL firms.
Chappell questioned the sustainability of BNPL products in a higher interest rate environment, suggesting that many firms may struggle as economic conditions weaken and credit defaults rise.
Efforts to regulate BNPL services faced multiple setbacks under the previous Conservative government, exacerbated by political instability and industry lobbying. Last year, the UK government proposed applying elements of existing regulations for mainstream lenders to BNPL plans, including increased information disclosure and FCA oversight.
Major BNPL firms like Klarna and Block’s Afterpay have expressed support for regulation that ensures consumer protection while fostering innovation. Clearpay, the UK arm of Afterpay, welcomed the government’s plans, advocating for regulation that sets high industry standards. Klarna also supported regulatory measures to improve transparency and safeguard consumers.
Philip Belamant, CEO of BNPL company Zilch, called for regulation to level the playing field and address gaps in consumer protection. He highlighted the issue of unregulated BNPL providers not impacting credit scores, which can undermine safeguards for consumers.
In addition to the UK, BNPL regulation is a global issue. In the US, the Consumer Financial Protection Bureau has mandated that BNPL lenders offer similar protections to credit card users, including refunds for returns and investigations of merchant disputes.
The upcoming UK regulations are expected to address these concerns and establish clearer standards for the BNPL industry, aiming to protect consumers and ensure fair practices across the sector.