Buy Now Pay Later or BNPL is not a new concept. Savvy business people have been working on this principle since time immemorial. These kinds of transactions benefit the customer, the lender and the retailer. The buyer and the seller have remained the same, it is the facilitator that has evolved over time. Earlier, credit was given by a professional lender, then institutes and banks took up the role, and now it is the fintech companies that are the enabling factor.
The small and large fintech companies have consolidated their hold over this market in the last year, which has led authorities to mull over regulations and norms for control.
Last week, Revolut announced that it planned to allow shoppers using its card to spread payments over three installments. PayPal, after launching its UK BNPL product last October, bought Tokyo-based group Paidy recently.
Other international deals that have gone through include Square buying Australian group Afterpay and Affirm, another BNPL company, announcing a partnership with Amazon.
Adding to this mix of payment options are some companies that are offering consumers to spread the payments of their online purchases. For example, Lookfantastic.com, the beauty site, gives at least six options to make payments for the products bought on its site. In addition, UK consumers can utilize the services of Clearpay, LayBuy, OpenPay and SplitIt, not all of which are technically BNPL providers.
Considering the rapid proliferation of companies offering easy payment plans through tie-ups with e-commerce companies, the regulatory authorities have been strangely recalcitrant.
The Woolard Review on unsecured credit, which was published in February, said that BNPL regulation was a “very urgent” matter, something that the regulator Financial Conduct Authority agrees on. But so far, nothing concrete has materialized.
Rocio Concha, director of policy and advocacy at Which? says, “regulation has not kept pace with innovation”, urging action without further delay. Woolard found that unregulated BNPL usage had trebled in 2020, with the sector overall reaching 1 per cent of the UK’s vast credit market. PayNXT360 believes it could account for 10 per cent of UK online purchases around the end of next year and gross transaction values could go up six times last year’s level by 2028.
BPNL is a good option for short-term interest-free credit. It is also an avenue for people who do not have access to conventional credit lines such as banks and financial institutions.
The confusion is about the many layers of payment channels involved. Where does the online payment start and end. Other concerns are the risks of missed payments, which are unclear, and whether any checks are in place to take care of the interests of the vulnerable people.
Experts are of the opinion that these are regular concerns about consumer credit and the regulatory authorities should be able to deal with it. “It’s not rocket science” is the blunt assessment of one expert.
However, one legislation has amended the Financial Services Bill that tackles the exemption that many BNPL credit agreements fell under.
Now the Treasury needs to decide on the scope of regulatory changes and then the regulator can pass new rules.
The Woolard review resulted in a further 25 recommendations beyond BNPL. The credit lines are gaining in popularity, and almost a third of UK consumers are using it, according to Which?, while the regulatory process has yet to start in earnest. The Treasury said: “It’s important that consumers are protected as these agreements become more popular.”
