The British government may be postponing its plans to regulate the buy now, pay later (BNPL) sector. According to Sky News, the Treasury is concerned that over regulating the space could limit the availability of BNPL services and prompt some of the industry’s biggest names to exit the UK market.
BNPL providers, such as Klarna and Clearpay, have surged over the years, amassing huge valuations. In fact, roughly £10 billion has been lent to consumers by BNPL companies within the last three years. Recognizing the need for stricter oversight, the government initially announced plans this past February to bring unregulated BNPL services under the purview of the Financial Conduct Authority. Draft legislation was released earlier this year.
A More Regulated Market
Consumer advocates are staunch supporters of regulating the BNPL space, arguing that the terms and conditions—including interest rates and fees—are often complex and difficult for consumers to understand fully. As a result, consumers unknowingly taking on significant debt or fall into financial traps. And because there’s an allure to pay for purchases via installment plans, BNPL services may also encourage reckless spending and financial irresponsibility.
Klarna has also expressed support for some regulation. In a bid to give consumers greater control over their finances, the company launched Britain’s first credit opt-out product in May. The initiative was reportedly suggested by City Minister Andrew Griffith during a meeting with Klarna’s co-founder and CEO Sebastian Siemiatkowski. Griffith commended the initiative, stating that it exemplifies how responsible businesses can employ innovation to protect vulnerable customers.
Looking Ahead
Whether or not the Treasury delays its plans or goes through with them, the implications of delaying regulation could reverberate throughout the payments world. Klarna’s valuation declined 85% in a funding round last year, largely due to concerns over impending regulation. This underscores the impact that regulatory decisions can have on the financial fortunes of industry players.
“We are surprised that we would see such mixed messaging from regulators on the future of BNPL in the UK, especially as they have been taking a prominently critical stance on the product,” said Ben Danner, Senior Analyst at Javelin Strategy & Research. “Perhaps, as companies begin to exit the market, they’ve changed their mind.”