The UK government is set to introduce new regulations for the buy now, pay later (BNPL) sector, which includes companies such as Klarna and Afterpay, after several delays.
A Treasury Department representative confirmed that updated regulatory plans will be revealed soon, following comments made by Tulip Siddiq, the newly appointed economic secretary of the Treasury. Siddiq stressed the importance of these regulations in protecting consumers and providing certainty to the industry.
The government’s push for regulation follows the findings of a 2021 review by former Financial Conduct Authority (FCA) chief Christopher Woolard, which found that more than 10% of BNPL users were in arrears. BNPL services, which allow consumers to make purchases and pay off debt later, often lead to significant debt build-up, especially among younger users.
Gerald Chappell, CEO of online lending firm Abound, noted that many consumers are racking up substantial debt from multiple BNPL providers. He questioned the sustainability of BNPL models in a high-interest environment and raised concerns about rising debt burdens and credit defaults.
Executives at major BNPL firms, including Klarna and Block, have raised concerns about the proposed regulations, saying they could push consumers toward more expensive credit options. However, other industry leaders, such as Clearpay and Zilch, have welcomed the move, highlighting the need for regulation to ensure consumer protection and high industry standards.
The FCA could regulate the BNPL sector within the next two years, as calls for stricter oversight grow. In the US, the Consumer Financial Protection Bureau has already imposed similar protections for BNPL users, ensuring they receive the same rights as credit card users.