Today, HM Treasury published a consultation paper about the future regulation of Buy Now Pay Later (BNPL).
At Klarna we believe that regulation is a good thing, and we continuously set the standard for the sector in the best interest of consumers. However, there are still bad products and providers out there, so we are pleased to see that the regulation of BNPL is now under way. Ultimately, this will drive consistency and improve outcomes for all consumers. As more companies, including incumbent banks enter the sector, it is essential we do not allow the typical dirty tricks of the old banks to continue whereby consumers are trapped in debt with fees and high interest charges.
At Klarna, our message to people is simple and sensible. In most cases, if you can afford something, you should pay for it with money you have. But there are of course times when the use of credit makes sense, and where purchasing with a debit card is not the best solution – for example when shopping online.
When used properly credit can be extremely beneficial. It can give you extra protection when you’re making an online purchase, or enable you to try before you buy, only paying for what you keep. Credit can also give you comfort if you’re shopping with a brand that you’re unfamiliar with, or to help you manage your money if you’re dealing with an unexpected cost when life happens.
Shoppers, homeowners, businesses, even governments use credit all the time. As Chris Woolard, a former head of the FCA, has acknowledged, “credit makes economies work and has a social purpose”.
At Klarna, our BNPL products give people the flexibility of credit, but help them stay out of debt quickly. We don’t charge interest or late fees and we have clear repayment schedules and reminders because we don’t want people to accumulate debt. This is the polar opposite to credit cards that encourage high credit limits and minimum payments, trapping people in a cycle of persistent debt with crippling interest and fees.
Regulation should be in place to protect people from the more damaging tricks of the trade – like consciously making it hard to switch between products or providers. In the UK, consumers stay with their bank on average for 17 years, that’s longer than the average marriage! Regulation must support stronger and healthier competition between banks and providers, with innovation and consumer outcomes at the heart, rather than length of time in the market. This competition, will in turn lead to the development of better products, processes and systems. This would benefit consumers by protecting them from being locked in with one provider offering poor value products, and from the risk of being cross-sold simply bad products.
BNPL offers consumers a transparent, better value, sustainable and healthier form of credit. Consumers need companies to strive for them, so we would like to see proportionate outcomes based regulation, where providers still have the freedom to innovate to deliver better products and in turn better service and outcomes for consumers. We firmly believe that regulation should not inadvertently push consumers back to using high-cost credit as BNPL products are clearly better for consumers than credit cards.
As the industry and consumer groups respond to this consultation, over the coming weeks we must all work to ensure these proposals are rigorous and effective. However, we will not respond like incumbent banks merely considering the impact on our business. This is not about profitability, this is about consumer outcomes.
As such, we will be analysing and responding to the consultation beyond just how it affects Klarna and our consumers. We will be thinking about how this consultation affects all the providers, addresses bad practices and importantly making sure we retain a level playing field for BNPL versus traditional credit cards.
Done well, buy now pay later regulation will protect consumers, promote competition and choice, and position London as a world leader in FinTech.