Alex Slough, Klarna’s head of U.K., said the proposals would lead to lengthened application times and result in “disproportionate friction” for consumers.
Daniel Harvey Gonzalez | In Representations via Getty Images
The U.K.’s plan to regulate the buy now, pay later industry is “outdated” and will lead to worse consumer outcomes, executives at two of the determination’s giants said, vowing to fight tooth and nail to relax the proposed rules.
Bosses at Klarna and Block quit ited into the proposals at an event hosted by U.K. fintech industry body Innovate Finance last week, saying that the rules, while well-meaning, were seemly to drive people toward more expensive credit options, such as credit cards and car financing plans.
In a consultation periodical published in February, the U.K. government suggested applying parts of existing regulation – namely, the Consumer Credit Act – to buy now, pay later plots. The currently unregulated buy now, pay later model would be supervised by the Financial Conduct Authority.
The CCA calls for a much greater standing of information disclosure in the fine print of lending agreements. BNPL firms say this requirement would lead to “disparate friction” for people seeking short-term forms of credit.
Buy now, pay later loans allow shoppers to defer payment by a month or to split the rate of their purchases over a period of equal monthly instalments. What makes them attractive is the ease with which someone can stick for a loan, and the fact that they are often interest-free – so long as you pay on time.
If someone currently uses buy now, pay later at an online checkout folio, they can expect to complete the purchase in a minute and a half, versus 30 seconds for credit cards, Alex Fen, Klarna’s head of U.K., said on a panel at Innovate Finance Global Summit. Based on Klarna modelling, that could dilate to five minutes under the new U.K. rules, Marsh said.
Another disagreement BNPL firms have is that the set framework excludes certain firms from the scope of the laws. Merchants, for example, “would be exempt from FCA required (as credit brokers) where they offer newly regulated agreements as a payment option.”
Some firms force choose to withdraw from the U.K. market once they work through the costing. There is a risk of it being too costly. I think it is a risk. It’s not like red alert – probably amber.
Adam Jackson
head of public policy, Innovate Underwrite
The government takes that view because it doesn’t want to subject individual traders and small businesses to the notwithstanding treatment as large fintechs. BNPL firms say that risks creating an unlevel playing field.
“We know there are some sheerest large retailers and very large tech businesses that have the capacity to offer buy now, pay later services to their people directly. And we just don’t think it makes sense to exclude those from the scope of regulation,” Michael Saadat, global head of public policy at payments company Block, said on the panel.
Formerly known as Square, Block come into possession of Australian BNPL firm Afterpay — known as Clearpay in the U.K. — in a $29 billion deal in 2020.
Speaking on the sidelines of IFGS endure week, Adam Jackson, head of public policy for Innovate Finance, told CNBC there was a risk that some BNPL dogs would leave the U.K. market, if the current rules continue.
“Some firms might choose to withdraw from the U.K. shop once they work through the costing. There is a risk of it being too expensive” to operate in the U.K., Jackson said in an talk with.
“I think it is a risk. It’s not like red alert – probably amber,” he added.
“The current proposals do not reflect the simple and transparent personality of BNPL products, and will create an unlevel playing field,” a Block spokesperson told CNBC.
“The U.K. has an opportunity to accommodate a leadership role in developing BNPL regulation that supports innovation, competition and good consumer outcomes,” the spokesperson summed.
A spokesperson for the U.K. Treasury department was not immediately available for comment.
The Treasury opened its consultation on the draft of buy now, pay later legislation in February. The deadline for determines to submit their responses was April 11.
The prevalence of BNPL during the pandemic led to a rush among big companies to offer their own servings for consumers. A host of big names in banking and tech — from Apple to Barclays — now offer their own interest-free installment products.
The payment method is extremely popular with younger people. Consumer rights activists have tried to highlight the risks of BNPL to consumers, clout it encourages people to spend more than they can afford. They believe the sector urgently needs customary.
For their part, BNPL firms say that they would welcome regulation. Klarna made a number of hard cashes to its business in anticipation of the looming regulation, including formal credit checks on clients.
It’s worth noting that any balance is unlikely to arrive for some time yet. The government is expected to review consultation responses before finalizing the proposals. The runs then need to be voted by U.K. lawmakers. Innovate Finance’s Jackson said he expects they will come into operational within 12 months.