The logo of the Swedish payment provider Klarna is displayed on a smartphone display on April 22, 2020 in Berlin, Germany.
Thomas Trutschel | Photothek | Getty Images
LONDON – Popular shopping services “buy now, pay later”, like Klarna, will make stricter regulations based on proposals announced by the British government on Tuesday.
The Treasury said Buy Now, Pay Later (BNPL) will come under the supervision of the Financial Conduct Authority (FCA), which regulates UK financial services companies and markets.
Such firms will be required to carry out accessibility checks before lending to customers, the government said, while people will also be allowed to extend complaints to the UK financial ombudsman.
BNPL products are used as an alternative to credit cards and exploded in popularity during the coronavirus pandemic, as people resorted to online shopping due to blocking restrictions.
Popularized by the Swedish start-up Klarna, these services allow customers to spread the cost of purchases over an interest-free installment period. Other companies in the space include Afterpay in Australia, which operates the Clearpay brand in the UK and Laybuy.
Consumer groups have warned that some people – especially the youngest – could be drawn into a debt trap. Consumer and product evaluation company Which? In the UK, for example, he says he is concerned that BNPL products may encourage people to spend more than they can afford.
An analysis 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 such products since the beginning of the pandemic. Meanwhile, more than one in 10 customers of a major bank using BNPL services were already in arrears.
“Buy now pay later can be a useful way to manage your finances, but it’s important that consumers are 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 they are only offered the agreements they can afford – the same protections you would expect with other loans.”
Some Labor MPs criticized the government for what they called a return to BNPL controls. Labor’s Stella Creasy led the BNPL’s regulatory demands, but the government rejected the proposal to do so just three weeks ago.
Klarna, which has so far raised $ 2.1 billion in funding, said it welcomed the move toward regulation.
“As a fully licensed bank, Klarna operates very comfortably in a regulated environment and wholeheartedly supports the regulation of the payment purchasing sector now 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 appropriate to the purpose, reflecting both the digital nature of transactions and the evolution of consumer preferences.”
Klarna is one of many technology companies expected to launch its shares in the public markets in the next few years. The company was last valued at $ 10.6 billion. Meanwhile, Afterpay has seen its shares rise by more than 1,500% since the end of March and is currently worth A $ 41.8 billion ($ 31.8 billion).
“Clearly this is becoming a huge experience for consumers and I would say a little guidance from the regulator is welcome,” Francesco Simoneschi, co-founder and CEO of British fintech company Truelayer, told CNBC on Tuesday.
“I hope it will be open enough not to create ‘bureaucracy’ towards innovation and to be really laser-focused at the point of risk.”