UK to enact new regulations on ‘wild west' BNPL industry
The UK government has outlined plans to regulate the operations of buy now, pay later (BNPL) firms as it aims for more transparency among the industry. The HM Treasury said BNPL firms will need to follow 'consistent standards', including upfront checks, to ensure shoppers can repay what they borrow.
The plans also detail 'fairer and faster access to refunds' and 'the right to complain to the Financial Ombudsman', aligning BNPL with other credit providers. The government stated that such changes intend to boost consumer confidence while also giving firms the certainty needed to grow and invest.
In a release, Emma Reynolds, economic secretary to the Treasury, said: 'BNPL has transformed shopping for millions, but for too long has operated as a wild west - leaving consumers exposed. 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.'
Reynolds' comment comes in response to the consultation on BNPL, first announced in October 2024. The government has further confirmed that the legislation bringing BNPL into regulation will be laid in Parliament on May 19.
The government had initially outlined draft legislation looking to regulate BNPL credit in 2023, after it was determined that the sector could be harmful to consumers and currently remains largely unregulated in the UK, lacking affordability checks on its offering of short-term loans.
The latest update aligns with new reforms to the Consumer Credit Act, which will replace the old regime with a 'pro-growth framework that reflects how people borrow today'. The FCA's 'more flexible' system will come into focus instead.
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The solution in this case could be stablecoins, the rate of which is linked to other assets. Nexo, a large international company, uses this method to save crypto assets, pay with them and take loans. Nexo claims that the volume of transactions and loans issued on the platform has already exceeded $320 billion. In order to develop the market, government agencies need to develop a legal status for BNPL players on the blockchain. But it's important to note its early days for blockchain. There are not many specialists who know how to develop blockchain systems, even in the global market. For instance, international BNPL services are still looking at the technology. Klarna only announced in February of this year that it was exploring options for integrating cryptocurrencies into its platform. While blockchain offers enormous potential today blockchain adoption is more complicated than AI. A number of regulatory and infrastructural issues need to be resolved to develop the technology. 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For instance, Grab PayLater provides BNPL services to millions of Grab users for rides, food delivery, and online shopping. The Paytm Postpaid superapp in India uses Paytm's transaction data to determine BNPL eligibility. And in China, Alipay and WeChat Pay offer BNPL options that allows users to split payments across thousands of merchants. BNPL providers can offer personalized credit limits, reduce default risks with better scoring models and provide custom BNPL plans based on user history. BNPL services integrated into superapps also allow providers to provide instant checkout options, loyalty programs and cashback offers and embedded financing across multiple services. International BNPL leaders such as Klarna, Affirm and Afterpay, in partnership with commercial banks, marketplaces, e-commerce shops and large retail chains, also offer debit cards to users. They can be used, among other things, to buy goods in instalments. 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