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Feb 15, 20231 min read

We’re ready for regulation.

by Alex Marsh

It has been two years since the FCA’s previous CEO, Chris Woolard, called for urgent regulation of BNPL. (It’s also two years since I made a nerve-wracking breakfast TV debut, agreeing strongly with the FCA… but that’s a story for another time…) In those two years, Brits have spent roughly £12bn using interest-free BNPL, saving over £200m in interest charges from ditching their credit cards.

Today, the Government published draft legislation giving the FCA powers to regulate BNPL. Announcing the draft rules, Andrew Griffith, MP, tweeted:

Buy-Now Pay-Later can be an easy and helpful way for people to manage their finances, allowing them to spread the cost of a purchase without paying any interest. We want to protect the minority who may end up borrowing more than they can affordably repay.

We agree and fully support proportionate regulation of the sector.

Low-cost credit is more important than ever.

With the cost of living crisis raging and prices at a 40 year high, access to lower cost alternatives to high-cost credit is more important than ever. Unsurprising then that consumers of all ages and demographics are now opting for interest-free BNPL, which is already a fairer and much better value choice for consumers than rip-off credit cards. Don’t just take my word for it – credit cards are right now charging consumers the highest interest rates since records began. How’s that for supporting consumers in a cost of living crisis? By contrast our default rates are actually at a record low, meaning that more of our customers are paying us back than ever before (over 99% of what they have borrowed).

We welcome the government’s proposed protections.

With today’s announcement, the government outlined how BNPL will be regulated. It includes protections for consumers which Klarna has long-called for, including standardising the information provided to consumers before they sign up, stronger requirements for credit checks and the ability to refer complaints to the Financial Ombudsman should something go wrong . We welcome these extra protections and look forward to continuing to work with the Treasury and the FCA to help bring the draft regulation into force.

We’re ready for regulation.

At Klarna we have not been sitting on our hands these past 2 years and are ready for regulation. As a European Bank with a long track record of providing regulated credit in the UK and setting the standard for BNPL, we are continuously improving the service and protections for our customers ensuring they have access to the fairest, most transparent forms of credit. We already share data with Credit Reference Agencies, and have strengthened our real-time affordability checks by offering consumers the option to securely share their bank transactional data using Klarna’s world-leading open banking network. We make it crystal clear how Klarna’s products work, that BNPL is credit which needs to be repaid and we work with the consumer group, Fairer Finance, to ensure our terms & conditions are simple and easy to understand.

Consumers are confused by credit cards.

And these efforts have been rewarded with our products now actually much better understood than traditional credit cards – where six out of ten consumers don’t understand even the most basic terms like the interest rate charged on their credit card. Finally, for the few occasions when things go wrong, Klarna has appointed an internal complaints adjudicator as an interim step until the Financial Ombudsman Service is extended to include BNPL products.

All providers should make changes now to protect consumers.

These changes are always important. But even more so during the current cost of living crisis. That’s why we are calling on all BNPL and credit providers to follow our lead and not wait for regulation, but make changes now to protect consumers.

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.