Ahead of a move to Financial Conduct Authority regulation at some point in the future, industry figures discussed the state of the Buy Now Pay Later credit market during a London Institute of Business Finance webinar on September 15.
The expert panellists were Jonathan Westwood, Chief of Staff at Liberis, a firm that works with leading BNPL providers to improve their access to finance; and Gren Manuel, an independent editorial consultant who has extensively researched the BNPL market.
The webinar was entitled ‘Democratisation of credit or a consumer debt crisis waiting to happen’, and with this in mind, the session opened with a poll, where 77% of attendees answered Yes to the question ‘Are the BNPL firms a danger to some consumers?’
Mr Manuel commented that the ‘free’ credit offered by BNPL firms, where no interest payments are required, is a genuinely new innovation; and that they are able to do this as their genuine end client is the retailer, not the consumer.
To emphasise how fast the market is growing, and perhaps why FCA regulation is now required, he added that one of the major BNPL providers is now the largest fintech firm in Europe.
He also suggested another way in which BNPL was different from certain other forms of credit was that the providers here want customers who will be able to meet their repayment obligations, as opposed to what might have been the case in some areas of the high-cost credit market. Mr Westwood also pointed out that BNPL firms typically insist that customers pay off the last BNPL purchase before they can buy in this way again. Mr Manuel came back and said that it was impossible to get into a debt spiral with BNPL as, unlike HCL, you can’t take out one BNPL arrangement to pay off another.
Mr Manuel suggested that, when the regulatory switchover finally happens, BNPL is likely to be a priority area for the FCA, as the regulator has shown over the past few years that it is genuinely concerned about lower income and vulnerable customers accumulating debts. While BNPL defaults do not show on credit files, consumers could still run into difficulties with unaffordable repayments.
Presenter Helene Panzarino commented that some consumers have found themselves entering into BNPL arrangements without their knowledge.
Mr Manuel then turned to the issue of data protection and remarked that BNPL firms are able to know exactly what consumers have purchased, and therefore consider themselves well-placed to predict what individuals will want to buy in the future. Ms Panzarino commented that one large BNPL firm has already been investigated by the Information Commissioner’s Office.
Mr Westwood then considered exactly how the FCA will regulate the market and said that it would be very difficult to know what level of affordability checks will be appropriate for small value BNPL purchases, such as £50 on clothing or footwear. He noted that existing FCA consumer credit guidance was non-prescriptive in nature, so the regulator never dictates what precise affordability checks are required.
At present, the FCA adopts the principle that consumer credit checks need to be proportionate, so a lower level of checks may be sufficient when the amount borrowed is small. However, the prospect of regulation in retrospect via Financial Ombudsman Service decisions on BNPL affordability complaints might be a concern for some firms in the sector.
Mr Manuel said that the large BNPL firms are publicly stating they welcome regulation, but then suggested that their motivation in doing so might be to raise the barriers for potential new market entrants, saying “the last thing they want is 15 new competitors.”
Following the Woolard review of unsecured credit, the FCA will commence regulation of BNPL at some stage in the near future, although a date for this has not been set.