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UK Financial Regulatory Updates
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The world of credit buy now, pay later is a hive of activity. Except, that is, the part that is supposed to regulate it.
Again this week, Revolut said it plans to allow buyers using its card to spread payments in three installments. PayPal, after launching its UK product buy now, pay later (BNPL) last October, bought out the Tokyo-based group Paidy.
It comes after a flurry of international deals, with Square buying out Australian group Afterpay and Affirm, another BNPL company, announcing a partnership with Amazon.
Meanwhile, UK consumers are being offered the option to spread payments over online purchases by an increasingly disconcerting list of companies: Lookfantastic.com, the beauty site, offers at least six options (nested among other online payment platforms), including Clearpay, LayBuy, OpenPay and SplitIt, which are not all technically BNPL providers and none of which is the market leader, Sweden’s Klarna.
Unlike this frenzy, there has been an ominous regulatory calm.
It has been seven months since the Woolard review of unsecured credit in the UK concluded that BNPL regulation was a “very urgent” matter, a sentiment widely shared by the regulator, the Financial Conduct Authority.
But while the hopes of spring turned into promises of summer, an expected Treasury consultation did not materialize. This raises a larger question about a mismatch between the rapidly evolving fintech and the way it is supervised. As Rocio Concha, director of policy and advocacy at Which? : “Regulation has not kept pace with innovation”, urging action without further delay.
Woolard found that unregulated use of BNPL tripled in 2020, with the industry globally reaching 1% of the UK’s vast credit market. It continues to grow rapidly: PayNXT360 estimates it could account for 10% of UK online purchases by the end of next year and the gross transaction value could be six times that of last year by 2028.
No one is proposing to ban BNPL, which has its advantages. Where it can be repaid, it is an inexpensive or even interest-free way to easily access short-term credit. It can also be an alternative to expensive loans for those who have difficulty obtaining regular credit.
But concerns range from consumer confusion as to where online payment ends and credit begins, whether BNPL and the risks of missed payments are clearly explained, and whether controls are in place over affordability. , borrowing or lending problems to people already in a vulnerable situation. Yet these are questions well understood in the world of consumer credit regulation: “It’s not rocket science” is an expert’s blunt assessment.
A legislative component has been made. A swift amendment to the Financial Services Bill in March gave the power to tackle the exemption that many BNPL credit agreements fell under. The next step is a Treasury consultation on the scope of the changes, before the regulator itself consults on the new rules it still expects to happen next year.
There may be problems, beyond the many and varied demands of the government.
A question could relate to the ability of credit bureaus to support checks for this type of product. A broader consumer credit regulatory update might also be on the table, given that Woolard’s review resulted in 25 additional recommendations beyond BNPL.
The consultation is still expected shortly. But the result is a product that has gone from virtually unknown to one that? estimates have been used by a third of UK consumers, while the regulatory process has not yet fully started. The Treasury said: “It is important that consumers are protected as these deals become more popular.”
BNPL demonstrates how new fintech models can be launched, grow and cross borders quickly, especially as “integrated finance” – an industry buzzword – shortens the distance between supplier and customer.
This is a time when post-Brexit Britain is committed to being more nimble in financial services regulation. And when regulators face more difficult challenges such as taming questionable crypto investments brought online and crypto exchanges such as Binance, two areas where the FCA has sparked a surge in regulatory capacity.
Buying now, paying later should be the easiest way to ensure the rules follow fintech innovation.
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