- Delaying Regulation: Government inclined to postpone oversight of BNPL industry
- Concerns about Withdrawal: Ministers worried about impact on availability of low-interest products
- Klarna’s Position: BNPL company supports regulation but raises concerns about outdated regulations
Ministers are inclined towards delaying plans to bring companies like Klarna under the City watchdog’s jurisdiction.
Whitehall is concerned that a crackdown on Britain’s rapidly expanding “buy now, pay later” (BNPL) industry could reduce the availability of low-interest products, prompting the government to abandon its plans.
During recent discussions with the industry, Treasury officials were informed that a number of the industry’s largest companies could leave the UK market if subjected to “heavy-handed” regulation.
Over the weekend, a source said the Treasury was leaning towards burying the ideas, but no decision had been taken.
Consumer advocacy groups have urged the Financial Conduct Authority (FCA) to regulate the BNPL sector.
After a legislative consultation, municipal minister Andrew Griffith is said to be examining several ideas.
In recent years, BNPL providers have erupted into the financial mainstream, with companies such as Klarna and Clearpay being valued at multiple billions of pounds.
BNPL companies have lent well over £10 billion to consumers over the past three years.
The government previously stated that stricter oversight of their products could defend up to 10 million Britons from “unrestricted borrowing.”
In February 2021, the Treasury announced that it would bring unregulated BNPL services under the FCA’s jurisdiction.
It then released a policy approach consultation and a draught legislative consultation in February.
Ministers are reportedly concerned about the impact of a withdrawal of interest-free BNPL products during the cost-of-living crisis in Britain.
According to one source, postponing the proposals would not necessarily result in their elimination.
“One option is to consider this as part of the work to update the Consumer Credit Act. Which was announced by the Treasury last year,” an insider said over the weekend.
Klarna has previously declared its support for “proportionate” sector regulation.
In April, the company stated, “Klarna has always supported BNPL regulation, and we agree with much of HMT’s consultation.”
“However, we are concerned with the proposal to duplicate and paste Consumer Credit Act regulations on credit agreements, which are obsolete and do not protect or inform consumers.
“Quite the opposite, they leave consumers confused and, ironically, steer them towards costly and higher-risk forms of credit.”
“With BNPL regulation, the government has a golden opportunity to be bold and create new rules to give consumers the right information at the right time so that they can make informed decisions.”
In May, Klarna introduced what it called Britain’s first “credit opt-out” product to offer consumers more financial control.
It was stated that Mr. Griffith suggested the concept during a meeting with the company’s co-founder and CEO, Sebastian Siemiatkowski.
In May, Mr. Griffith stated, “As the government seeks to protect UK borrowers by introducing proportionate regulations for Buy-Now-Pay-Later products, I welcome this initiative that demonstrates how a responsible business can use innovation to help protect vulnerable customers.
Klarna was valued at $6.7bn in a fundraising round a year ago, but regulatory concerns cut this valuation by 85%.
