The Treasury has (finally) spoken on Buy Now Pay Later. Here are my thoughts...

It's good but we need to stop talking about risk as if Schuh sales assistant offering store credit is both more persuasive and powerful than the entire business of social media and paid advertising

What's happening?


It's been:

7 years since Klarna opened its UK office

4 years since Clearpay launched its pay later product in the UK

9 months since the FCA's Woolard Review

This morning the Treasury has published its consultation paper on Buy Now Pay Later (BNPL).


The approach the Treasury has taken is largely right - since June of last year I’ve been calling for proportionate regulation which both acknowledges the value of BNPL in the market but also the risk. It feels like the paper gets close to that. I’ve used Klarna myself and recognise that BNPL can be a useful tool. The paper:

  • Acknowledges the poor track record of irresponsible BNPL marketing and suggests that BNPL promotions fall under the financial promotions rules.
  • Recommends the application of FCA rules which would make sure consumers were given good quality information about product risk before signing up. We need this urgently.
  • Notes that proportionate regulation of BNPL should include the use of FCA creditworthiness rules to reduce the risk of overindebtedness
  • Advises that regulation should give shoppers access to the financial ombudsman.

I wholeheartedly agree with the need for all of these things.

The challenge

My challenge is the approach to ‘risk’. The paper concludes that BNPL is ‘inherently lower risk than the majority of other regulated credit agreements’  yet fails to define what risk’ actually means. This speaks to a much larger concern.

Under the FCA's definition, this conclusion might be the case (the BNPL providers in question don’t charge interest) but it worries me that we continue to define ‘risk’ in ‘1974 Consumer Credit Act’ terms. Almost as if The Treasury really believe that New Look store cards and catalogue credit still present a significant threat to 18-year-olds today. It is precisely how ‘risk-free’ BNPL products are in traditional terms, their availability on impulse, integration into social media and presence in an environment which weaponises our data, that makes them ‘risky’. We know, as concluded in the Woolard Review it is far too easy to accrue high levels of debt with BNPL. At one point the consultation paper notes that in an in-store environment there are higher risks because of pressure selling as if a Schuh sales assistant offering store credit is both more persuasive and powerful than the entire business of social media and paid advertising.

After a long time campaigning for this, I’m glad to see my concerns and those of others reflected but we need to look at the bigger picture: 1) Why is this taking so long? Since launching the campaign, Klarna’s monthly active users have more than doubled. Another Christmas is about to pass by without any protection in place. 2) When will the Treasury and FCA realise that if the fundamentals of the game have changed, the rules and definitions no longer apply.