The logo of the Swedish payment provider Klarna is shown on the display of a smartphone on April 22, 2020 in Berlin, Germany.
Thomas Trutschel | Photothek | Getty Images
LONDON – Popular “buy now, pay later” shopping services like Klarna will have stricter regulations under proposals announced by the UK government on Tuesday.
The Treasury said buy now, pay later (BNPL) companies will be under the supervision of the Financial Conduct Authority (FCA), which regulates financial services companies and markets in Britain.
These companies will be required to carry out accessibility checks before lending to customers, the government said, while people will also be able to refer complaints to the UK financial ombudsman.
BNPL products are used as an alternative to credit cards and exploded in popularity during the coronavirus pandemic, when people started shopping online due to blocking restrictions.
Popularized by the Swedish start-up Klarna, these services allow customers to spread the cost of their purchases over a period of interest-free installments. Other companies in the space include Australia’s Afterpay, which operates the Clearpay brand in the UK, and Laybuy.
Consumer groups have warned that some people – especially younger people – may fall into the debt trap. The consumer and the product analysis company Which one? in the UK, for example, he says he is concerned about BNPL products that may encourage people to spend more than they can afford.
A review by Christopher Woolard of the FCA found that the UK’s BNPL market is worth £ 2.7 billion ($ 3.7 billion), with 5 million Britons using these products since the start of the pandemic. However, more than one in 10 customers of a large bank that uses BNPL services was already behind schedule.
“Buy now, pay later, can be a useful way to manage your finances, but it is important that consumers are protected as these deals become more popular,” said John Glen, economic secretary for the Treasury, in a statement Tuesday. market.
“By intervening and regulating, we are ensuring that people are treated fairly and that only agreements that they can afford are offered – the same protections that you would expect from other loans.”
Some opposition Labor lawmakers criticized the government for what they called a turnaround in BNPL controls. Stella Creasy of the Labor Party had led requests for regulation of the BNPL, but the government rejected a proposal to do so just three weeks ago.
Klarna, who has raised a total of $ 2.1 billion in funding so far, said he welcomed the move towards regulation.
“As a fully licensed bank, Klarna feels very comfortable operating in a regulated environment and wholeheartedly supports regulation of the buy now, pay later in the UK,” a Klarna spokesman told CNBC.
“We agree that regulation has not kept pace with new products and changes in consumer behavior and it is now essential that regulation be modern, proportionate and fit for purpose, reflecting both the digital nature of transactions and the evolution of consumer preferences.”
Klarna is one of many technology companies that are expected to launch their shares in public markets in the coming years. The company’s last private valuation was $ 10.6 billion. Afterpay, in turn, has seen its shares rise by more than 1,500% since the end of March, and is currently worth 41.8 billion Australian dollars ($ 31.8 billion).
“It is clear that this is becoming a huge consumer experience, and I would say that a little bit of guidance from the regulator is welcome,” Francesco Simoneschi, co-founder and CEO of British fintech company Truelayer, told CNBC on Tuesday. market.
“I hope it will be open enough not to create ‘bureaucracy’ for innovation and really focus on the point of risk.”