Klarna welcomes UK buy-now-pay-later regulations

By Robert Scammell

Swedish fintech Klarna has welcomed the introduction of interest-free buy-now-pay-later regulations in the UK, adding that they have “not kept pace with new products and changes in consumer behaviour”.

The Financial Conduct Authority (FCA) will now regulate the booming sector, which allows people to split payments without paying interest.

While the service offers a convenient way to break down payments, there has been controversy after consumers already in debt were able to continue using the service to make additional purchases and build up further debt.

New laws will be put before parliament that require lenders such as Klarna to carry out affordability checks and “ensure the vulnerable are treated fairly”.

The new regulations follow an FCA review of the unsecured credit market that found a “significant risk” that interest-free agreements could harm consumers.

“Buy-now-pay-later can be a helpful way to manage your finances but it’s important that consumers are protected as these agreements become more popular,” said John Glen, economic secretary to the Treasury.

“By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford – the same protections you’d expect with other loans.”

The clampdown comes as buy-now-pay-later purchases in the UK tripled in 2020 as part of a pandemic-induced ecommerce boom. Interest-free payment sales totalled £2.7bn in the UK last year.

In the absence of regulation, fintech lenders have enjoyed explosive growth. Instead of charging interest, lenders charge a fee to retailers and some enforce late payment fees to consumers.

However, Klarna does not view the buy-now-pay-later regulations as a threat to its business model.

“As a fully licensed bank, Klarna is very comfortable operating in a regulated environment and wholeheartedly supports the regulation of the buy now pay later sector in the UK,” Alex Marsh, head of Klarna UK, told Verdict.

“We agree that regulation has not kept pace with new products and changes in consumer behaviour and it is now essential that regulation is modern, proportionate and fit for purpose, reflecting both the digital nature of transactions and evolving consumer preferences.”

Marsh added that Klarna, which has 10 million UK customers, has “fully engaged” in the review into the unsecured credit market.

“We now look forward to working together with the FCA, government and the wider sector to build a modern regulatory and supervisory framework that delivers the best outcomes for customers,” he said.

However, Gary Rohloff, managing director and co-founder of buy-now-pay-later firm Laybuy, told the BBC: “We believe we are already in a good place when it comes to regulation.

“There needs to be a balance to protect consumers, but also make sure it retains the innovation and simplicity ​that consumers value.”

Further consultation will take place before legislation is put forward. It should also mean that consumers will be able to take a complaint with a buy now, pay later company to the financial ombudsman where they were previously unable.

Mark Turner, managing director Duff & Phelps’ Compliance and Regulatory Consulting practice, said:

“For the majority of the users of these products, they can offer a useful mechanism to manage cashflow effectively and support them through challenging times. However… there are vulnerable customers who are juggling debt from multiple providers, which can spiral very quickly out of control.

“Where some products are regulated with other, similar products, unregulated standards may not be consistent, and it can be harder for the authorities to support consumers who have suffered or are at risk of suffering.

“It is therefore right that the FCA is looking into this, particularly given the current economic backdrop.”


Read more: UK top destination in Europe for fintech investment


 

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