UK to regulate buy now pay later (BNPL) such as Klarna and Clearpay

LONDON – “Buy now, pay later” purchasing services like Klarna will indeed regulate tighter under proposals announced by the UK government on Tuesday.

The Treasury said purchasing now, later payment companies (BNPL) would come under the control of the Financial Conduct Authority (FCA), which regulates financial services companies and markets in Britain.

Such companies will be required to conduct cost audits before lending to customers, the government said.

BNPL products are used as an alternative to credit cards and have been growing steadily during the coronavirus pandemic, as people have turned to online shopping due to locking restrictions.

As Klarna begins in Sweden, these services will allow customers to spread the cost of their purchases over a period of interest-free installments. Other companies in space include Afterpay Australia, which operates the Clearpay UK brand, and Laybuy.

Consumer groups have warned that some people – especially younger people – may be lured into a debt trap. The consumer and product review company Which? in the UK, for example, says it is concerned that BNPL results could encourage people to spend more than they can afford.

A study by Christopher Woolard of the FCA found that the UK BNPL market is worth £ 2.7 billion ($ 3.7 billion), with 5 million Brits using such products since the outbreak of the pandemic. At the same time, more than one in 10 customers of a large bank was already using BNPL services in debt.

“Buy-now-pay-later can be a helpful way to manage your finances but it is important that consumers are protected as these deals become more popular,” he said. John Glen, Treasury economic secretary, in a statement Tuesday.

“By engaging and regulating, we make sure people are treated fairly and only give agreements that they can afford – the same protections as expect other loans. “

Some lawmakers in the Labor Party have criticized the government for calling a U-turn on BNPL controls. Labor ‘s Stella Creasy had been leading calls for BNPL rule but the government voted a proposal to do so just three weeks ago.

Klarna, which has funded a total of $ 2.1 billion to date, said it welcomed the move towards governance.

“As a fully licensed bank, Klarna is very comfortable operating in a regulated environment and strongly supports the regulation of the now pay later buy sector in the UK,” a Klarna spokesman told CNBC.

“We agree that management has not kept pace with new products and changes in consumer behavior and it is now essential that modern, relevant and appropriate governance reflects both the digital nature of business. and growing consumer preferences. “

Klarna is one of many tech companies planning to showcase its shares in the public markets over the next year or two. The company was last given private value at $ 10.6 billion. Afterpay, meanwhile, has seen its shares rally more than 1,500% since the end of March, and is currently worth 41.8 billion Australian dollars ($ 31.8 billion).

“Clearly, this is becoming a huge consumer experience, and I would say that some guidance from the regulator is welcome,” Francesco Simoneschi, co – founder and CEO of UK fintech company Truelayer, told CNBC on Tuesday.

“I hope it’s going to be open enough to not create a ‘red tape’ to innovate and laser-target at the point of danger.”