UK to regulate payment companies now (BNPL), such as Klarna and Clearpay

LONDON – Popular “buy now and pay later” shopping services, such as Klarna, will make stricter regulation according to proposals announced by the British government on Tuesday.

The Treasury said companies now buying and then paying (BNPL) would go under the supervision of the Financial Conduct Authority (FCA), which regulates companies and financial services markets in Britain.

These companies will have to carry out affordability checks before lending them to customers, the government said, while people will also be allowed to lodge complaints with the UK financial advocate.

BNPL products are used as an alternative to credit cards and have exploded in popularity during the coronavirus pandemic, as people engaged in online shopping due to blocking restrictions.

Popularized by the Swedish start-up Klarna, these services allow customers to spread the cost of their purchases over an interest-free installment period. Other companies in the space are Afterpay of Australia, which operates the Clearpay brand in the UK and Laybuy.

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

A review by Christopher Woolard of the FCA found that the UK BNPL market is worth £ 2.7 billion ($ 3.7 billion), with 5 million Britons using these products since the start of the pandemic. Meanwhile, more than one in 10 customers of a major bank using BNPL services already had arrears.

“Buying now to pay later can be a useful way to manage your finances, but it’s important for consumers to be protected as these deals become more popular,” Treasury Secretary John Glen said in a statement Tuesday.

“Through intervention and regulation, we make sure that people are treated fairly and that only agreements that can be afforded are offered, the same protections you might expect with other loans.”

Some opposition Labor party lawmakers criticized the government for what they called a change of direction over BNPL controls. Labor Stella Creasy had led the BNPL’s regulatory calls, but the government rejected a proposal to do so just three weeks ago.

Klarna, who has raised a total of $ 2.1 billion to date, said she was pleased with the move towards regulation.

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

“We agree that regulation has not kept pace with new products and changes in consumer behavior and it is now essential that regulation be modern, proportionate and purposeful, reflecting both the digital nature of transactions as the evolution of consumer preferences “.

Klarna is one of many technology companies expected to launch shares in the public markets over the next two years. The company was last valued at $ 10.6 billion. Meanwhile, Afterpay has seen its shares increase 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 gigantic consumer experience, and I would say some regulator guidance is welcome,” Francesco Simoneschi, co-founder and CEO of British technology firm Truelayer, told CNBC on Tuesday. .

“I hope it’s open enough not to create ‘administrative paperwork’ for innovation and to be really laser-focused at the point of risk.”