Buy now, pay later (BNPL) lenders such as Swedish giant Klarna and Clearpay face greater scrutiny in the UK under government plans to regulate them more like mainstream banks.
In recent years, concerns over BNPL business practices have steadily risen in the UK, with the number of complaints submitted to the Financial Ombudsman jumping 36% to 220 in 2023, according to reports.
From next year, BNPL companies will need to follow consistent standards, including upfront checks, faster access to refunds and the right to complain to the Financial Ombudsman, bringing them in line with other credit products.
“These new rules will protect shoppers from debt traps and give the sector the certainty it needs to invest, grow, and create jobs through our Plan for Change,” said Emma Reynolds, economic secretary to the Treasury.
“Buy now pay later has transformed shopping for millions, but for too long has operated as a wild west — leaving consumers exposed.”
The previous Conservative government first promised to regulate the sector in 2021 and announced plans in 2023 before delaying implementation of draft legislation.
Around 11m people in the UK are estimated to have used BNPL services in the past year, the BBC reported.
Klarna tells Sifted that it checks whether a consumer can afford a purchase every time they use the service, including an external credit check.
“Interest-free BNPL is an important alternative to high-cost credit for millions of Brits and we’ve supported regulation to keep it safe and accessible since 2020,” the company said.
“It’s good to see progress on regulation, and we look forward to working with the FCA on rules to protect consumers and encourage innovation.”
Regulation will “give clarity and consistency to the sector”, Clearpay told Sifted.
“We will support the FCA to deliver fit-for-purpose regulation that ensures consumer protection, provides much-needed innovation in consumer credit and supports the UK’s thriving fintech sector.”
