Why Buy Now Pay Later (BNPL) regulation matters now more than ever

“It’s time to turn the spotlight on, not flick off the switch” – Todd Latham on why Buy Now Pay Later regulation matters now more than ever.

Recently, the rumour mill has churned out reports that the Government plans to shelve the regulation of the Buy Now, Pay Later (BNPL) sector. As a platform provider of regulated retail finance products, we think this is a terrible idea for both consumers and the industry. 

The latest figures suggest inflation sits at 7.9%, down from its 11.1% peak in October but still significantly higher than the 2% target. That means prices are continuing to rise. Wages are going up – but not as fast – and so are interest rates, which piles additional pressure on homeowners. The UK has effectively taken a pay cut. 

As a result, consumers are borrowing more to pay for the essentials and support their lifestyles. And they’re using BNPL – a form of retail finance for lower value transactions – to do it.

But a lack of regulation leaves them exposed. BNPL purchases are unprotected by section 75 of the Consumer Credit Act should something go wrong with a transaction, as they are with credit cards. And there are also issues around credit worthiness checks, marketing, credit reporting and complaints, leaving consumers at risk. Regulation is urgently needed.

Responsible retail finance

When applied responsibly, retail finance can be an overwhelming force for good. Short-term Interest-free Credit, for example, is in many ways the same as BNPL, but for higher-value purchases.

Consider a family whose boiler has broken. A new one costs £2,000, yet only 1-3% of households has the reserves to fix theirs if it were to break. The family are faced with a choice: access a traditional loan or credit card and be penalised with expensive interest, or, access Short-term Interest-free Credit to spread the cost.

It’s clear, then, that retail finance can support consumers with cheap access to credit at times when they need it most. In our latest research, we found that six in 10 of the people we spoke to said that checkout finance can help them manage their finances, and this rises to eight in 10 when you ask those who’ve actually engaged with the product. 

For BNPL to be acknowledged for these benefits – as a legitimate budgeting tool – it must first be validated as a safe and secure way for consumers to pay. A validation that can only be achieved, we believe, with continued Government scrutiny and regulation. 

Rather than being put off the scent by well-paid lobbyists, policymakers should take the opportunity to engage even deeper with the industry. This would help them to understand the sticking points and where concessions can be made. 

Retail finance for higher value purchases, like boilers, is already provided by regulated financial institutions. It offers the same benefits as BNPL. BNPL should be brought in line with the rest of our industry to protect consumers at all price points.

We’re urging the Government to keep their plans alive, and not give up because of pressure from a few bad actors. Regulation is vital to offer consumers a safety net from unscrupulous BNPL firms. Firms that lack consideration for their customers’ affordability. It’s time to turn the spotlight on BNPL, not flick off the switch.