Klarna and Block beat ‘outdated’ UK buy now, pay later proposition
- Executives at Klarna and Block say proposed UK buy-now-pay-later rules, while well-intentioned, are likely to do more harm than good.
- The proposals will dramatically increase the time taken to make a BNPL purchase, resulting in disproportionate friction for consumers, they said.
- Fintechs also believe that regulation in its current form will create uneven competition by excluding merchants and Big Tech firms from the scope of the laws.
Alex Marsh, Klarna’s UK boss, said the proposals would lead to longer application times and result in “disproportionate friction” for consumers.
Daniel Harvey Gonzalez | In photos via Getty Images
Britain’s plan to regulate the buy-now, pay-later industry is “outdated” and will lead to worse consumer outcomes, executives at two of the industry’s giants said, vowing to fight hard to loosen the proposed rules.
Bosses at Klarna and Block tabled the proposals at an event hosted by UK fintech industry body Innovate Finance last week, saying the rules, while well-intentioned, were likely to steer people towards more expensive credit options, such as credit cards and car finance plans.
In a consultation document published in February, the UK government proposed using parts of existing regulation – namely the Consumer Credit Act – to buy now, pay later plans. The currently unregulated buy-now-pay-later model will be monitored by the Financial Conduct Authority.
The CCA requires a much greater degree of information disclosure in the fine print of loan agreements. BNPL firms say this requirement will cause “disproportionate friction” for people seeking short-term forms of credit.
Buy now, pay later loans allow customers to defer payment by a month or spread the cost of their purchases over a period of time in equal monthly installments. What makes them attractive is how easily someone can apply for a loan, and the fact that they are often interest-free – as long as you pay on time.
If someone is currently using buy now, pay later on an online payment site, they can expect to complete the purchase within a minute and a half, versus 30 seconds for credit cards, Alex Marsh, Klarna’s head of UK, said on a panel at the Innovate Finance Global Summit . Based on Klarna modelling, that could increase to five minutes under the new UK rules, Marsh said.
Another disagreement BNPL firms have is that the current framework excludes certain firms from the scope of the laws. Sellers, for example, “would be exempt from FCA regulation (such as credit brokers) where they offer newly regulated deals as a payment option.”
Some firms may choose to withdraw from the UK market once they have gone through the costing process. There is a risk that it will be too expensive. I think it’s a risk. It’s not like red alert – probably amber.
Adam Jackson
head of public policy, Innovate Finance
The government takes that view because they do not want to subject individual traders and small businesses to the same treatment as large fintechs. BNPL firms say it risks creating an uneven playing field.
“We know that there are some very large retailers and very large technology companies that have the capacity to offer buy now, pay later services to their customers directly. And we just don’t think it makes sense to exclude them from the regulatory realm,” Michael Saadat , international head of public policy at payments company Block, said on the panel.
Formerly known as Square, Block acquired Australian BNPL firm Afterpay – known as Clearpay in the UK – in a $29 billion deal in 2020.
Speaking on the sidelines of the IFGS last week, Adam Jackson, head of public policy for Innovate Finance, told CNBC that there was a risk that some BNPL firms would exit the UK market if the current rules continued.
“Some firms may choose to withdraw from the UK market once they have gone through the costing. There is a risk that it will be too expensive” to operate in the UK, Jackson said in an interview.
“I think it’s a risk. It’s not like red alert – probably amber,” he added.
“The current proposals do not reflect the simple and transparent nature of BNPL products and will create uneven competition,” a Block spokesperson told CNBC.
“The UK has an opportunity to take a leadership role in developing BNPL regulation that supports innovation, competition and good consumer outcomes,” the spokesperson added.
A spokesman for the UK Treasury was not immediately available for comment.
The Treasury opened its consultation on the draft buy now, pay later legislation in February. The deadline for companies to submit responses was April 11.
The spread of BNPL during the pandemic led to a rush among major companies to offer their own services for consumers. A number of big names in banking and technology – from Apple to Barclays – now offer their own interest-free installment products.
The payment method is particularly popular among younger people. Consumer rights activists have sought to highlight the risks posed by BNPL to consumers, saying it encourages people to spend more than they can afford. They believe the sector has an urgent need for regulation.
BNPL firms, for their part, say they welcome regulation. Klarna made a number of changes to the business in anticipation of the looming regulation, including formal credit checks of customers.
It’s worth noting that any regulations are unlikely to come for some time yet. The government is expected to review consultation responses before finalizing the proposals. The rules must then be voted on by UK lawmakers. Innovate Finance’s Jackson said he expects them to take effect within 12 months.
