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The backstory: Buy Now, Pay Later (BNPL) is a trendy payment method where you can split up the cost of purchases, usually without any interest. But, like with anything, convenience and innovation often come with some regulatory concerns. And in the case of BNPL, those worries are around the levels of debt and transparency involved.
Especially with the rising cost of living, many people are uneasy about how BNPL could impact their finances. And while consumer groups and watchdogs have been pressuring the industry to regulate itself, not much has changed.
More recently: That is, until 2020, when the pandemic led to a surge in BNPL borrowing, especially among young people. In fact, the sector grew nearly fourfold in the UK, reaching a whopping £2.7 billion (around US$3.2 billion) in size. This caught the attention of the UK government, which started looking into ways to regulate the industry in 2021.
The global BNPL market was valued at US$6.13 billion last year, and it's expected to grow with a compound annual growth rate (CAGR) of 26.1% from now through 2030.
The development: Now, the UK has announced new rules to regulate the sector. BNPL providers will now have to be licensed by the Financial Conduct Authority (FCA), run better affordability checks, provide more transparent loan info and give customers more recourse to complain if something goes wrong. And if the companies fail to meet these requirements, they could face a ban on further lending or have to pay fines. The government plans to consult on these new rules and put legislation before Parliament later this year.
"People should be able to access affordable credit, but with clear protections in place," said UK Financial Services Minister Andrew Griffith in a statement from the finance ministry.
“Buy now, pay later borrowing can be like quicksand – easy to slip into and very difficult to get out of,” said Matthew Upton, director of policy at Citizens Advice. “Every day without regulation is another day people are left unprotected.”
"The government must ensure there are no delays to introducing these changes and that consumers are given stronger safeguards to protect them and warn about the risks of using buy-now pay-later schemes," said Rocio Concha, director of policy and advocacy at consumer group Which?.