On the same day that Apple and Klarna inked a deal to integrate BNPL, the UK government has announced new regulations aimed at protecting millions of Buy-Now, Pay-Later (BNPL) users, ensuring greater transparency and affordability.
Eligible Apple Pay users in the US and UK will have first access to Klarna’s payment offerings, including pay later in three or four instalments with no interest or over longer periods.
The global expansion will continue with Canada slated to launch in the coming months.
BNPL Regulation in UK
The UK BNPL market is forecast to grow from £22.6 billion ($28.7 billion) in 2022 to £44.8 billion ($56.8 billion) by 2028, with an annual growth rate of 10.9%.
Under the new regulations, introduced in the UK, BNPL providers will be supervised by the Financial Conduct Authority (FCA) and required to assess borrowers’ affordability before approving loans, preventing unmanageable debt.
Additionally, shoppers will receive clearer loan information, tailored to the online nature of BNPL products.
Consumers will also gain stronger rights, including access to Section 75 of the Consumer Credit Act, which allows them to seek redress from lenders.
The rules also allow access to the Financial Ombudsman Service for resolving disputes.
Economic Secretary to the Treasury, Tulip Siddiq, emphasised the importance of protecting BNPL users while encouraging sector growth, adding that the regulations address the previous lack of consumer safeguards.
The proposed rules were welcomed by industry analysts like Sameer Pethe, a partner at Kearney, who stressed that BNPL remains a crucial tool for many consumers.
However, he cautioned against burdensome compliance for firms, advocating for balanced regulations.
Pethe also pointed out the issue of “back-dated interest”, a structure that could harm vulnerable borrowers, calling for more attention to this in the regulatory framework.
“As long as these safeguards remain proportional, balancing the protection for consumers against the burden of compliance for firms, the new regulations would simultaneously increase consumer protection and provide clarity to lenders and retailers,” said Pethe.
“The proposed legislation should not be a surprise to the industry, being clearly based on the recent Woolard review of the sector, published in 2021.
However, it isn’t clear if the regulation would consider how “back-dated interest” is charged.
This is a patently unfair structure where the most vulnerable borrowers often end up subsidising others, not unlike the issue with interest on overdrafts that led to the FCA introducing new regulation in 2019-2020.”
The move aims to modernise the sector, which has become increasingly popular among UK shoppers.
These protections will reduce consumer risk, offering clarity for BNPL providers and paving the way for further innovation in the fast-growing market.
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