Policymakers around the world are rightly looking at ‘buy now pay later’ (BNPL) regulation. Consumers have snapped up sustainable credit products because they offer no interest, no fees, low (or no) charges, the ability to ‘try before you buy’, buyer protection, clear repayment schedules and reminders… the list goes on. But there are still some providers out there that aren’t offering the best products, which is why it’s important to discuss regulation.
Let’s set the record straight: at Klarna, we welcome proportionate regulation that genuinely benefits consumers.
In the UK, we recently responded to a government consultation on BNPL regulation setting out our views on what would be the best approach. Klarna has also been engaged with a US Consumer Financial Protection Bureau study of the BNPL market.
In the EU, policymakers have been discussing legislative proposals to update the rules on consumer credit across Europe (the Consumer Credit Directive, or CCD), which would include short term, interest free credit for the first time.
Our message to EU policymakers is very simple:
- Consumers should shop with the money they have first and foremost. However, sometimes using credit makes sense – like when you want to check you’re satisfied with what you ordered before you pay. BNPL gives protection to consumers at zero cost meaning it is the cheapest, safest way to purchase.
- The revised CCD must deliver financial inclusion and consumer welfare. This will be achieved by making innovative short term, interest-free credit widely available as an alternative to old, high-cost credit like credit cards. Policymakers should have a laser focus on this.
- We support the vast majority of the new CCD proposals – the interest rate cap, the ban on tying practices and indeed ensuring BNPL products are regulated. However, there are a few elements that need adjusting to deliver the best outcome for EU consumers.
So what do we think needs to be looked at again?
1. Pre-contractual information. We pride ourselves on providing clear, concise and intuitive information that allows customers to fully understand what they can expect when they make a purchase with us. However, the current EU proposals include standardised information that is unnecessary or repetitive for interest free, short term loans, like ‘APRs’ (do you know what it stands for? What’s a ‘good’ APR level? Do you know the APR on your credit card?) and the ‘right to withdraw’ in 14 days. It’s interest free! And consumers can ‘withdraw’ from the BNPL agreement at any time simply by paying the cost of the product they have purchased.
Barraging people with unhelpful information is confusing, distracting and discourages engagement with information that really matters. Consumers will quickly learn to ignore these standard notices. Some may find them so irritating that they choose to go back and use services which avoid this poor customer experience, like high-cost credit cards – exactly the opposite of what the CCD wants to achieve. But don’t just take our word for it, check out this video and see what the Standard European Consumer Credit Information (SECCI) form will look like.
2. Creditworthiness assessments. We agree it’s best to prevent over-indebtedness problems before they occur. However, credit checks also need to be appropriate for the type of credit used, which in the case of BNPL is short term, zero cost and for low purchase amounts. At Klarna, we assess affordability for every BNPL purchase – but asking consumers to undertake a slow, intrusive process like a full income and expenditure assessment would not be appropriate when all they want to do is buy a €90 pair of jeans.
What would help? Improved quality and real-time access to credit directory data across Europe. This would assist all credit providers who want to use it, like Klarna.
The key is to ensure that consumers are not punished with a negative mark on their credit file purely for using short term, interest free credit. This would happen if providers are required to conduct a ‘hard’ credit check irrespective of whether the consumer repays on time or not. Hard credit checks aren’t needed every time a consumer pays with a credit card; they shouldn’t be needed when they use short term, interest free products.
We know EU policymakers want to promote innovation, financial inclusion and consumer welfare. These minor changes would be our recommendations for delivering that.
If you would like to learn more about Klarna’s perspectives on the Consumer Credit Directive contact firstname.lastname@example.org.