CONSUMER CREDIT BNPL: the good, the bad and the unknown? Buy Now Pay Later has become a significant and dynamic part of the lending industry, but, in the absence of long-awaited regulation, it remains controversial. AUTHOR – Steve Kiely “There’s no one-size-fits-all approach when it comes to how people manage their finances. Many people are looking for flexible payment options – Jennifer Bailey, Apple Pay and Apple Wallet Brave | Curious | Resilient / www.cicm.com / <strong>December</strong> <strong>2023</strong> / PAGE 14
“We are proud to be the first BNPL service to join forces with MAN and give customers a simplified route to debt advice, and are calling on other BNPL providers to join us in providing the same access to advice and support, to ensure that customers’ interests are always put first.” – Flora Coleman, Klarna acknowledged past two years, it’s no surprise to see the A commonly fact, is it not? Buy Now Pay Later or BNPL is an unfortunate development of the modern business environment. An unneeded facility, illegitimately interspersing itself between customer and retailer? The message seemed to be confirmed when analysts Hargreaves Lansdown commented on Financial Conduct Authority (FCA) findings suggesting that 27 percent of people used BNPL in the six months to January <strong>2023</strong> (14 million people). In the year to May 2022 the figure was just 17 percent. Those w ho used it more than 10 times in the previous 12 months were twice as likely to have high-cost credit (48 percent), twice as likely to have taken on more debt in the past year (51 percent) and more than four times as likely to have missed a bill or debt repayment (27 percent). Tendrils Sarah Coles, Hargreaves Lansdown’s head of personal finance, said: “As BNPL spreads its tendrils into the finances of 14 million people, it feels like a flourishing business, helping us spread the cost of purchases and manage our finances sensibly. However, there’s a much darker side to it. Very regular users run a risk that it could take a stranglehold on their finances, squeezing the life out of their financial resilience. “On paper, the fact there’s no interest to pay on money borrowed this way makes it a very sensible option to help us manage our budgets. There’s no doubt that millions of people are taking advantage of BNPL in a way that works for them. However, for others it becomes a dangerous habit – encouraging them to buy things they don’t really need and can’t afford. As a result, those who lean heavily on BNPL are far more likely to stray into other worrying types of borrowing – from taking out high-cost credit to letting debts mount up, and missing repayments.” And this negative view is not uncommon. Richard Lane, Director of External Affairs at StepChange Debt Charity, agrees: “Given the immense financial strain so many people have been under for the use of BNPL on the rise. While we know that these products work well for millions of consumers, for those who are struggling to make ends meet, it is an unregulated line of credit which can all too easily result in people borrowing to pay bills or make other repayments.” Proportionate regulation According to Richard: “Only proportionate regulation will improve these products for millions of customers which is why we’ve been disappointed to see delays to the implementation of new rules that have been promised since 2019. We urge the Government to stick to its guns and bring about this regulation as soon as possible. Putting struggling consumers first is the right thing to do.” But there is more of a story to tell. Earlier this year, the FCA insisted that significant new regulation would be forthcoming: • Lenders will need to ensure BNPL advertising is clear, fair and not misleading. • Customers will get Section 75 protection on purchases made using BNPL. • Customers will have the right to complain to the Financial Ombudsman Service. Similarly, even before the full implementation of regulation, the regulator is pushing the industry to improve. The FCA has used its powers under the Consumer Rights Act 2015 to secure changes to what it considers to be potentially unfair and unclear contract terms in this sector, building on the FCA’s work with other BNPL providers last year and the guidance that was issued at the time. The FCA was concerned that PayPal and QVC customers were at risk of harm because of how some of the contract terms were drafted. As a result of the FCA’s continued focus in this area, both firms have voluntarily made their continuous payment authority terms easier to understand – and PayPal has made terms relating to what happens when a consumer cancels the purchase funded by the loan clearer and fairer. Money advice And the industry is obviously working to improve its own standards. In July, the industry’s biggest player, Klarna, announced a partnership with the Money Adviser Network (MAN) to help its consumers access free and impartial debt advice quickly. Through the partnership, Klarna will signpost debt advice services from members of the Money Adviser Network to its customers. This will enable individuals who are concerned about their finances or would like independent and free credit advice to access 24/7 support. Klarna is also trialling Open Banking data to improve its affordability assessments. Flora Coleman, director of global policy and government relations at Klarna, said: “We are proud to be the first BNPL service to join forces with MAN and give customers a simplified route to debt advice, and are calling on other BNPL providers to join us in providing the same access to advice and support, to ensure that customers’ interests are always put first.” No one-size-fits-all And there is no shortage of proponents for the market. Technology giant Apple has introduced Apple Pay Later and Jennifer Bailey, Apple’s vice president of Apple Pay and Apple Wallet is excited for the prospects: “There’s no one-size-fits-all approach when it comes to how people manage their finances. Many people are looking for flexible payment options, which is why we’re excited to provide our users with Apple Pay Later. “Apple Pay Later was designed with our users’ financial health in mind, so it has no fees and no interest, and can be used and managed within Wallet, making it easier for consumers to make informed and responsible borrowing decisions.”Of course, the unknown factor over the hill is next year’s General Election, with Labour quick out of the blocks to promise that, under their government, BNPL providers will be subject to absolutely the same regulatory requirements as any other consumer lenders. So, possibly it is not fair to assess BNPL as either good or bad just yet, rather it is a work in progress. A part of the industry that still has some growth to achieve. Brave | Curious | Resilient / www.cicm.com / <strong>December</strong> <strong>2023</strong> / PAGE 15
Change language