BNPL sector faces tougher restrictions as FCA publishes review

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uy-now-pay-later (BNPL) has dominated the UK headlines in recent months with calls for stricter regulations. The FCA has finally responded by publishing a review into consumer credit and addressing BNPL concerns.

The Woolard Review sets out how regulation can support a healthy market for unsecured lending, taking into account the impact of Covid-19, changing business models, and developments in BNPL unsecured lending.

BNPL outfits such as Klarna enable consumers to pay for items in instalments or delay payments for a month or more’s time. This can often lead to consumers taking on too much debt, leaving them struggling to meet payment deadlines. And often, this will have a negative impact on consumers’ credit scores.

Corporate regulator has reported that 21% of BNPL users have missed a payment. Even worse, some 15% of users have required to take out a loan to repay BNPL debts.

Experts across the payments industry have criticised BNPL outfits for not giving enough support to customers who are struggling to meet repayment deadlines.

Klarna came under fire last year for not warning customers that failing to meet payments could lead to debt collectors getting involved. Hence, this has fuelled a call for tougher regulations in the sector.

The announcement came just weeks after MPs voted against regulating the sector. A group of 70 cross-party MPs failed to push the bill through Parliament in January.

Despite being a massively talked about industry, BNPL still has a long way to go before it makes a dent in the payments space.

For instance, FIS’ Global Payment Reports outlines that BNPL will only account for 3% of global e-commerce spend – this is tiny in comparison to digital/mobile wallet payments, which are expected to account for 50%. So that poses the question – is BNPL worth all the noise?