For a while now, we’ve believed there needed to be a bigger conversation around ‘buy now pay later’ (BNPL) schemes.
Firstly, this kind of credit had fallen through the gaps of regulation.
Secondly, there was a lack of education around the BNPL schemes offered through firms such as Clearpay and Klarna.
This seems to be a view that others share.
When we carried out a Twitter poll last year asking if there was enough education for young people to better understand their relationship with BNPL schemes, a resounding 100 per cent of respondents said this was not the case.
Now this issue has been brought to the fore.
Last week the FCA called for full regulation of BNPL credit, saying change was needed as a “matter of urgency”.
As part of a review into the unsecured credit market, former interim FCA chief executive Chris Woolard put forward 26 recommendations to reform the sector, including bringing BNPL schemes into regulation.
The accompanying report said:
“The emergence and expansion of unregulated BNPL products gives consumers a significant alternative to more expensive credit, but this also comes with significant potential for consumer harm.
“For example, more than one in 10 customers of a major bank using BNPL were already in arrears. Regulation would protect people who use BNPL products and make the market sustainable.”
The FCA has backed the recommendations and wants to work with the government to design the regulation.
Given the conversation around BNPL schemes of late, and the increasing scrutiny, it would have been impossible for the FCA to not pick up on this and introduce some sort of regulation.
The need for change
Over the last couple of years, the use of BNPL schemes has been on the up.
Most online retailers now not only offer it as a payment method, but actively encourage buyers to use it. And these are usually retailers with a target audience aged between 18 and 30.
Advertising around BNPL has gone through the roof, with online fashion retailers in particular offering discounts on purchases if the buyer pays using a BNPL scheme.
This is fine, as long as the schemes are being used responsibly.
But where I do have an issue is with the lack of education point I mentioned earlier.
These brands could be seen to be ‘glamourising’ debt, and for young people keen for a new outfit for the weekend, the convenience may prove too much.
The adverts come with no risk warning. What happens if you miss a payment? Does this affect your credit score? Will the debt collectors be knocking on your door?
Having checked the websites of Klarna and Clearpay, you have to dig deep to find any sort of explanation, and even then this isn’t completely clear.
Before the FCA got involved, there were people working towards a different approach to BNPL schemes.
Go Fund Yourself, which offers money guides and resources, looks into the advertising ploys that these companies use, and is encouraging younger people to educate themselves on the risks that go along with them.
Ultimately, it’s a relief that the FCA is now taking action.
It’s good that we may have averted another payday loan type scandal. In terms of the future, I’m hoping to see more responsible advertising, and certainly clearer terms and conditions.
This is a positive step forward.
Hopefully it’s one that should encourage consumers (especially the younger generation) to save for the things they want, rather than being coaxed into BNPL schemes perhaps with no real idea of what they’re signing up to.