December 11, 2023

The UK government may delay plans to regulate the buy now pay later (BNPL) industry.according to sky newsThe Treasury is concerned that over-regulating the sector 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 soared over the years, amassing huge valuations. In fact, BNPL has lent around £10bn to consumers over the past three years. Recognizing the need for tighter regulation, the government initially announced plans in February this year to bring unregulated BNPL services under the purview of the Financial Conduct Authority. Draft legislation was released earlier this year.

more regulated market

Consumer advocates are strong supporters of the field of regulating BNPLs, arguing that the terms and conditions, including rates and fees, are often complex and difficult for consumers to fully understand. As a result, consumers unknowingly take on huge debts or fall into financial traps. Due to the attractiveness of purchasing by installment payment, BNPL’s services may also encourage reckless spending and irresponsible financial behavior.

Klarna also expressed support for some regulation. To give consumers more control over their finances, the company launched the UK’s first credit opt-out product in May. The initiative was reportedly launched by City Minister Andrew Griffith during a meeting with Klarna co-founder and CEO Sebastian Siemiatkowski. Griffiths praised the move and said it exemplified how responsible businesses can use innovation to protect vulnerable customers.

looking to the future

Whether or not Treasury delays its plans or executes them, the impact of delayed regulation is likely to reverberate across the payments landscape. Klarna’s valuation fell 85% in a funding round last year, largely due to concerns about upcoming regulation. This highlights the impact regulatory decisions can have on the financial fortunes of industry players.

“We are surprised that the regulator has sent such mixed messages about the future of BNPL in the UK, especially as they have been taking a clearly critical stance on the product.” ben danner, a senior analyst at Javelin Strategies and Research. “Perhaps, as companies started exiting the market, they changed their minds.”