The firms will come under the Financial Conduct Authority (FCA) purview, which regulates financial services in the country.
“Buy-now-pay-later can be a helpful way to manage your finances but it’s important that consumers are protected as these agreements become more popular,” John Glen, economic secretary to the Treasury, said in a statement.
BNPL services, which represent a $3.7 billion industry in the U.K., have quickly gained popularity among consumers, especially since the onset of the pandemic in March last year. According to FCA’s Christopher Woolard, some five million Brits have started using such products since the start of the pandemic.
While these services’ popularity has continued to soar, consumer protection groups have continued to warn that the use of flexible payment solutions can prompt consumers to spend way more than they can afford, CNBC reported. According to the FCA, that is a legitimate reason to worry as more than one in 10 British customers of a major bank that were using BNPL services were found to be in arrears.
“By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford – the same protections you’d expect with other loans,” Glen added.
The move to regulate BNPL platforms is being welcomed by U.K.’s opposition Labour Party as well as financial campaigners.
“As it stands, victims of fraud via BNPL products have been unable to seek the support of the financial ombudsman and shoppers as young as 18 are being advertised these products by influencers, with no risk wording,” said Alice Tapper, an activist who campaigned for the regulation through social media.
“Today, BNPL is often a teenager’s first encounter with credit,” she said. “Regulation means consumers will receive the information and protection they deserve.”
Key BNPL service providers, including Klarna and Afterpay, welcomed the industry’s efforts and said that they looked forward to working with the FCA.
“We agree that regulation has not kept pace with new products and changes in consumer behaviour and it is now essential that regulation is modern, proportionate and fit for purpose, reflecting both the digital nature of transactions and evolving consumer preferences,” a Klarna spokesperson told CNBC.