Stricter Checks Ahead for Buy Now Pay Later Shoppers in the UK

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Stricter Checks Ahead for Buy Now Pay Later Shoppers in the UK

Next July, new regulations will change the Buy Now Pay Later (BNPL) services game in the UK. We believe these changes would go a long way to improving consumer protection and making things right. The Financial Conduct Authority (FCA) will intensify affordability checks for consumers. These changes are happening as the use of these services continues to grow at an astounding rate. Vikki Brownridge, chief executive of StepChange Debt Charity, welcomed the proposals. She touted them as “a major win” for bringing the BNPL market in line with other forms of credit.

BNPL services allow consumers to purchase goods immediately using short-term, interest-free credit. After that, they can pay back the total in 12 or fewer payments over the course of a year. FCA data suggests that around 11 million people in the UK have used Buy Now Pay Later (BNPL) products over the past year. Of those, 30% of 25-34-year-olds had used BNPL at least once in the 12 months to May 2023. The top non-healthcare services paid for with BNPL included beauty, lifestyle purchases, and treating yourself or others.

BNPL market giants like Klarna and Clearpay. These firms have been adopted as fashionable, convenient payment methods on the part of most of the UK’s biggest retailers. These services are not without risks. In a 2022 hearing, Nurse Julie Rowbottom warned legislators of the lethal risks of BNPL borrowing. She cautioned that it’s “very easy to fall into a trap” with this kind of financing.

The FCA’s upcoming regulations will implement a bridging regime ahead of new rules coming into effect next July. This new legislation gives the FCA an opportunity to consult on its plans to regulate the BNPL sector in a much more holistic manner. As Alison Walters, interim director of consumer finance at the FCA, said recently, that risks entrenching existing inequalities. She explained that while they won’t prescribe how companies should do business, firms need to acknowledge that there are variations in the digital experience.

When it comes to regulating the BNPL sector, the financial stakes are high. In fact, regulators predict that in the next ten years, consumers will save £1.8 billion due to better regulations. That would mean a big cut in profits for providers. They’re set to lose £1.4 billion from reduced deal flow as a result of these regulations.

Industry leaders would be hard pressed to find strong opposition to regulating BNPL services. Importantly, they argue for finding the right balance between consumer protection and innovation in the growing sector. They argue that while it is crucial to safeguard consumers from potential pitfalls associated with BNPL borrowing, companies must retain the flexibility to innovate and adapt to changing market conditions.

In a jarring counterpoint to this regulatory drive, UK Labour Chancellor Rachel Reeves has recently advocated for more deregulatory moves in financial services. Her comments came in the same week that proposals for stricter oversight of BNPL services were announced, highlighting a potential divergence in government perspectives on financial regulation.

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