BNPL – Do the regulations matter?
Paul Marcantonio, Executive Director UK & Western Europe, Ecommpay
Buy now, pay later (BNPL) has gained significant popularity as a payment service in the UK over the years. According to Ecommpay data, by late 2022, 27% of consumers were already utilising this option, while a third of shoppers would abandon their purchases if BNPL was not available. The appeal of splitting payments into manageable instalments has resonated with people of all age groups and across various markets and industries, particularly as the cost of living continues to rise.
However, the UK government has recently directed its attention toward scrutinising BNPL due to concerns arising from its unregulated nature as a credit service. In response, the government has proposed new draft legislation aimed at introducing regulations and addressing the issues associated with irresponsible spending and mounting debt. These regulations will enforce stricter credit checks from lenders and ensure the safety of consumers. By establishing regulations on both the consumer and lender sides, the use of BNPL is expected to become even more appealing.
What the data shows
Insights from Ecommpay’s data indicate that BNPL was a popular choice for holiday purchases last Christmas, with over 40% of Millennials and 46% of Gen Z expressing their likelihood of using this payment option. Additionally, 30% of respondents within the 35-44 age group shared similar sentiments, highlighting the widespread adoption of BNPL among different demographics.
The absence of regulations has been a deterrent for many individuals and businesses considering BNPL. When borrowing money, there is always an inherent risk involved. However, without proper regulations, both consumers and businesses tend to shy away from such payment methods to avoid potential financial troubles and losses.
In 2022, 51% of business leaders believed that further regulations would lead to an increase in the usage of BNPL. This sentiment drove the push for regulations implemented earlier this year, which has reshaped the rules governing the use and distribution of this technology.
The drafted legislation
The proposed legislation will empower the Financial Conduct Authority (FCA) to closely monitor lenders and customers, providing an additional layer of stability to the BNPL landscape. Lenders will face fines or lending bans from the FCA if they fail to conduct adequate credit checks on potential BNPL customers. On the consumer side, the legislation will extend protection by holding BNPL providers to the same standards as traditional lenders. This means that consumer complaints can be addressed directly by the Financial Ombudsman Service (FOS), an option that was previously unavailable.
Furthermore, the legislation will subject BNPL providers to increased scrutiny regarding the advertising of their products. The FCA warned BNPL firms in 2022 that their promotions must be transparent, fair, and free from misleading information. These guidelines will be enforced if the legislation moves forward.
While these changes are largely positive, their impact on consumer behaviour and the provision of payment services remains to be seen. In 2022, Ecommpay’s research found that 37% of consumers felt more encouraged to use BNPL with the introduction of new regulations. Therefore, the proposed regulations should offer reassurance to consumers considering this credit option.
BNPL’s next steps
As we await the implementation of regulations, the market continues to innovate. New and more advanced financial models are constantly being developed, indicating a promising future for BNPL and other payment services.
The concept of BNPL 2.0 has been proposed, aiming to mitigate risks, comply with current regulations while also being future-proof, and expand the availability of the service for certain lenders. Allowing BNPL for purchases up to £30,000 could set a precedent that may lead to its usage in Business-to-Business (B2B) transactions becoming more prevalent.
When embracing new payment systems, it is crucial to consider the moral and ethical aspects. Evaluating the interests of both consumers and lenders is the first step toward ensuring safety and risk mitigation. Lenders must provide consumers with comprehensive information, enabling them to make informed decisions about utilising BNPL services. With enhanced safety measures, businesses and consumers may feel more secure when using BNPL, leading to its increased adoption across industries and appealing to a wider demographic.
Similar to well-established payment services such as mobile wallets, contactless payments, and SWIFT, BNPL will continue to evolve and expand in its quest to provide the best user experience. The introduction of regulations further validates its use, offering a safer method for managing finances, especially during challenging economic times.
Jesse Pitts has been with the Global Banking & Finance Review since 2016, serving in various capacities, including Graphic Designer, Content Publisher, and Editorial Assistant. As the sole graphic designer for the company, Jesse plays a crucial role in shaping the visual identity of Global Banking & Finance Review. Additionally, Jesse manages the publishing of content across multiple platforms, including Global Banking & Finance Review, Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune.