Will Regulation End or Expand BPNL in the UK?

Buy now, pay later, also known as BNPL, has become very popular among retail consumers. The process of receiving interest-free payment installments has opened an easy credit line to consumers for online shopping, flight booking, hotel reservations, and numerous other services.

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However, as of today, the industry is mainly operating without any regulations. The lack of widespread regulation has exposed the sector to high levels of fraud and distress to borrowers, saddling some with unaffordable debts, and thus attracting the attention of market regulators.

The industry is prone to two basic types of fraud. One is called synthetic identity fraud with which scammers join bits and pieces of consumers' stolen identities to lend on behalf of them, while the other is account takeover of legitimate BNPL customers. Though data on BNPL frauds are scarce, a report by anti-fraud company Sift revealed that fraud attacks on such fintech platforms went up by 54 percent year over year.

The situation is also grim in the UK as a survey found that a third of British BNPL consumers are facing 'unmanageable' troubles in repayment of installments with rising costs of living, putting them in a debt spiral. Many UK citizens, mostly the young generation, went on shopping sprees with the easy credit line, but later found themselves in massive debts.

Citizens Advice, an independent organization in the UK helping people with debt, found that 51 percent of 18 to 34-year-olds in the UK have BNPL debts, compared to 39 percent in the age group of 35 to 54 years and 24 percent of 55 years and above. It also cited the example of a 32-year-old who bought £600 worth of clothes using a BNPL firm to pay in installments. Though she did not receive the goods and canceled the payments, she was “barraged with calls, emails, and letters from a debt collector - all for buying some clothes online.”

Upcoming Regulations

Surprisingly, the United Kingdom government came out as one of the first to bring regulations to this booming but unregulated sector. The government is planning to mandate lenders to carry out affordability checks, ensuring that the loans are affordable. Further, there will be curbs on promotion rules for BNPL services.

Also, the lenders in the UK offering BNPL services have to take the approval of the Financial Conduct Authority (FCA ). It will allow borrowers to take complaints to the Financial Ombudsman Service (FOS).

“By holding Buy-Now Pay-Later to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK,” said John Glen, the Economic Secretary of the UK Treasury.