17 Jul 20231 min read

Are rumours of the death of BNPL regulation exaggerated?

Klarna K logo

by Klarna

Klarna believes strongly that BNPL should be regulated. We have made this argument over and over again, since before the FCA first recommended regulation in February 2021. So we were surprised when over the weekend, Sky News published rumours that the government may “shelve” long-awaited BNPL regulations. News to us.

We’re going to stick our necks out here and say we believe BNPL will be regulated in the UK. The arguments in favour are too strong.

We hope it happens quickly.

It is, of course, important that regulation is introduced wisely. There are many examples of poor regulation akin to a tick box exercise which leave consumers unprotected and established banks entrenched. Take for example the regulations which require websites to display cookie disclaimers. A recent academic paper found that disclaimers had no effect on consumer’s attitudes to privacy; in fact, consumers “got even more accustomed to the use of cookies”. Regulation was introduced, website owners ticked the box, lawyers and compliance consultants got rich, but the effect on consumers was the precise opposite of that intended. If BNPL regulation is delayed in an effort to avoid this failure loop and instead make it more effective, then that is a good thing.

We are not waiting for regulation

BNPL provides consumers with an interest-free alternative to credit cards, with a clear payment schedule and much more frequent checks to ensure consumers can afford to make a purchase. The result is, outstanding BNPL balances are less than a tenth of credit cards and default rates are 30-40% lower at less than 1%.

That said, at Klarna we are always looking for new ways to protect consumers and have not waited for regulation. We have delivered, and will continue to deliver, a series of measures to protect consumers:

  • We launched the industry’s first ‘credit opt-out’.
  • We began sharing data with credit reference agencies.
  • We have appointed our own internal complaints adjudicator to replicate the support of the Financial Ombudsman Service.
  • We have worked with consumer organisation, Fairer Finance, to ensure that our terms and conditions are as clear, simple and easy to understand as possible.
  • We introduced the option to ‘pay now’ alongside our credit products wherever Klarna is available, which makes up over a third of our business globally.

We will continue to work with consumer groups, debt campaigners and the government to ensure that BNPL regulation protects consumers, not banks.

Copyright © 2005-2023 Klarna Bank AB (publ). Klarna Bank AB (publ) is authorised and regulated by the Swedish Financial Supervisory Authority. Deemed authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website. Klarna Bank AB offers both regulated and unregulated products. Klarna’s Pay in 3 instalments and Pay in 30 days agreements are not regulated by the FCA. Klarna Bank AB (publ) registered and head office: Sveavägen 46, 111 34 Stockholm, Sweden. A Swedish public limited company (publikt bankaktiebolag) registered with the Swedish Companies Registration Office with organisation number: 556737-0431.