Buy Now Pay Later: Regulate Ever?

After the Financial Conduct Authority (FCA) announced they were to crack down on potentially unfair and unclear contract terms from the likes of Clearpay and Klarna, who have been exponentially growing due to the boom in Buy Now Pay Later, there have been some rumblings on if it’s time to regulate the industry.

The process of Buy Now Pay Later has been around since the late 1800’s, but only since 2014 has it been recoined as BNPL and started becoming more popular each year. The companies mentioned above have really taken the concept of BNPL to the next level and it’s now uncommon for particularly online retailers to not offer the process to customers.

According to Bloomberg Intelligence, BNPL sales could top $181 billion by the end of 2022 after it was reported that in 2020 sales reached $93 billion in 2020. But if BNPL is to continue to grow and establish itself as a legitimate form of spending, simply put it needs to be regulated. If regulation doesn’t come or the industry is averse to working with the likes of the FCA, the perception of the industry could mirror that of payday loans. And we all know how they are viewed by the majority of the population!

The process of BNPL is particularly appealing to younger demographics who might not have a credit card or may not want to use one and see using BNPL enabling them to access goods for essentially ‘free money’. It might be close to payday or might be something the individual thinks they need right then but don’t have the money to purchase at the time. Many of the BNPL giants don’t even charge late fees and would simply refer the customer to a debt collector if payment fails.

The sheer lack of repercussions on not paying on time could lead many people, especially in a culture of needing to have the most up to date tech and fashion, to continue using different BNPL companies for purchases despite not having the income to afford to repay.

The most worrying statistic, as reported by the Australian Securities and Investment Commission, is that 15% of users had to take out another loan to make their payments and 1 in 5 cut back on purchasing essentials because of the repercussions of BNPL purchases.

It definitely could be a key turning point that the FCA have managed to enforce the unfair and unclear terms to BNPL companies. Despite not having full control to regulate the industry this could be seen as the FCA, for lack of a better term, ‘flexing their muscles’ and proving that they should have the power to fully regulate the industry.

Based on the research that has been conducted, it is likely that the industry will become regulated to ensure that long term spending issues particularly in young people doesn’t become more of a problem than it already is. If regulation is to come, the regulator must work carefully to ensure that the Buy Now Pay Later providers aren’t going to use the fact that credit checking and building a credit score for example might be involved as a way of increasing their marketing efforts to consumers.

At W2 we firmly believe that regulation is on the horizon for the industry and have the tools to guide BNPL companies for best practice when it comes to onboarding and monitoring their customers.

Interested in hearing more? Contact us here.


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