This week, the FCA released the findings of its Woolard Report, which has set out a series of changes and innovations targeting the buy-now-pay-later (BNPL), unsecured lending market.
Decried by some as ‘klarnage’, named after market leader Klarna, the fallout of the proposed regulations have certainly sent shock waves crashing through an industry riding high on record growth success.
BNPL has seen a huge surge during the pandemic, as consumers turned their backs on more traditional payment methods, such as credit cards, in favour of increased value from new market credit providers. Unsurprisingly, it is these unregulated disruptors that come under the scrutiny of the FCA.
Of course, if we look at the history of top market disruptors, think Uber, AirBnB and Netflix, they all found loopholes and exploited fast-to-market strategies that launched them to the top. Businesses like Klarna and Clearpay have been no exception.
Where it comes to lending and risk, banks were shackled by regulations and their best-in-class rigour, which allowed these bright young businesses to dazzle and win the sprint. But that was the short-term view. The FCA’s Woolard Review, with the dash of a pen, has changed the game for the long term.
We work with a number of leading global banks and lenders and see first-hand the disadvantages these regulated organisations incur in a world where other companies are not held to the same high, regulatory standards. It doesn’t serve the sector well, nor does it help the consumer.
The playing field is now levelled. Traditional lenders and banks have the opportunity to work with a different kind of disruptor, in companies like ours; one that not only provides the technology to deliver retail finance, at speed, but also embraces regulatory rigour.
Retail finance, when provided as an additional payment option to the financially savvy brings value to the end consumer. As is the case with other regulated finance, it delivers flexibility for those looking to spread payments as part of a calculated and fiscally responsible plan.
The issue for BNPL is not with the payment method itself but rather the fact that it can fail to protect the consumer, where, currently, a purchase can be made without the customer realising they have even entered into a credit agreement.
As Christopher Woolard, Chair of the Review, said: ‘The Review sets out a series of recommendations for how the FCA, working with partners, can build a better market in future.’
If the payment method is deployed as part of a regulated financial framework, banks, with their technology partners, will transform retail finance with a superior, responsible and value-driven product.