Buy Now, Pay Later (BNPL) services have emerged as a popular method for consumers to access credit. Typically offered at the point of sale, BNPL providers can offer immediate credit, frequently at a lower interest rate than traditional credit cards. While providing a good service to consumers, there are also risks – both for the borrower’s decision-making and for the firm offering the loan.
In recognition of the rise of this new type of credit, the UK Financial Conduct Authority has proposed new rules that are said to mirror existing regulations for other types of lending.
Probably the most important rule is that lenders will be required to ensure borrowers can afford to repay any loan. It was not immediately clear how the FCA will enforce this rule.
Deputy Chief Executive of the FCA, Sarah Pritchard, says they have long wanted to bring BNPL into their remit as they believe this will help consumers better navigate this type of credit.
“We’re mainly relying on existing requirements, including the Consumer Duty, rather than proposing to make lots of new rules, supporting growth and allowing firms to innovate,” says Pritchard.
According to their research, one in five UK adults, or 10.9 million consumers, have used BNPL in the past 24 months. This is an increase from the last measure in 2022, when 8.8 million users tapped into BNPL offers.
Additionally, the highest rates of unregulated BNPL use were found among adults aged 25-34 (30% had used it at least once in the 12 months to May 2024), those with low resilience (30%), and adults living in the most deprived areas of the UK (29%). The most common use for it in the 12 months to May 2024 was for lifestyle and beauty purchases (41%), followed by ‘treating myself or other people’ (37%). 8% of those who used it in the last 12 months said they used it to cover ‘everyday essential expenses’.
The FCA states that a temporary regime will be in place, during which providers will have two months to register, before firms are required to obtain full authorisation to provide BNPL services. The FCA is asking for feedback on these proposals.