UK Coalition for a Digital Economy Publishes Paper on Regulating Buy Now, Pay Later (BNPL): Don’t Throw the Baby Out with the Bathwater

The Coalition for a Digital Economy (Coadec), an organization created to promote the UK as the top European startup ecosystem, has published a paper on the fast-growing Buy Now, Pay Later (BNPL) sector of Fintech.

Entitled Regulate Credit Now, Reform it Later, Coadec says the credit service has created new challenges. Coadec notes that BNPL platforms are not directly regulated and currently rely on consumer credit rules under the Financial Services and Markets Act.

While advocating on behalf of additional regulation, Coadec clarifies that the benefits of BNPL should NOT be lost in the process of any new regulation.

To quote Coedec:

“…to apply a blunt implement under the auspices of avoiding consumer harm would be to throw the baby out with the bathwater and risk the very harm to consumers it attempts to address through the mistaken removal of a consumer-friendly credit option.”

Coedec outlines five principles for BNPL rules:

  • Zero-in on regulating providers, not retailers. Placing the onus on the retailer would disproportionately increase administrative and compliance costs for e-commerce startups and SMEs relative to the large retailers who could afford compliance. Additional compliance requirements would lead 68% of e-commerce startups to stop offering BNPL solutions. 86% said that this would put them at a commercial disadvantage to larger players, as it would prevent them from being able to offer a customer experience that is increasingly in demand.
  • Require providers to develop processes that track affordability. Importantly, this requirement should not be for a “hard credit check”. These checks cost a premium dictated by the big three Credit Rating Agencies, while the prospect of receiving 5 ‘credit checks’ for taking out five BNPL loans totalling £350 is hardly proportionate. In contrast, affordability tracking should be proportional to the risk involved: a possible solution could be to leverage Open Banking through providers like Aire to assess affordability, particularly as this would give providers visibility of existing customer liabilities with other BNPL firms.
  • Drag the credit rating industry into the 21st Century. Use Smart Data regulation to prise open the Credit Rating Agencies’ treasure trove of data that should actually belong to the customer.
  • Tighten consumer communications. Regulators could look into mandating the reporting of metrics that demonstrate consumers have been provided with adequate information about the payment method, such as complaint volumes and complaints upheld by the Advertising Standards Authority. Bad practice by either merchants or BNPL providers should be held to account and an effective customer redress mechanism should be introduced.
  • Provide a better customer redress model. The FCA should review the impact of regulator complaints rules on competition in retail financial services markets. It should also consider whether a single ombudsman service for the whole financial services industry is still the right approach.

Coadec reports that more than 10 million people used BNPL to purchase goods online in 2020 or nearly 4% of online retail sales in 2020. The UK’s BNPL market has almost quadrupled over the last twelve months and is now valued at £2.7 billion.

Coadec was founded in 2010 by Mike Butcher, Editor-at-Large of technology news publisher TechCrunch, and Jeff Lynn, Executive Chairman and Co-Founder of online investment platform Seedrs.

The paper may be downloaded here.


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