Over the past few months barely a week has gone by some debate over the rapid growth of the ‘buy now pay later’ sector in the UK. As often happens, regulation has not kept pace with new products and changes in consumer behaviour and it is now essential that regulation is modern and fit for purpose, reflecting both the digital nature of transactions and evolving consumer preferences. As the market leader in this area, we are often asked for our view. You can watch me talk about it here, but I thought it would be helpful to lay out our position below.
Consumers’ needs are changing.
Consumers want to bank, shop, save and pay in new ways. When it comes to paying, the ‘buy now pay later’ option has become increasingly popular with consumers as they prefer debit in managing their every day spending and broadly move away from traditional forms of credit.
As the ‘buy now pay later’ sector has grown, it has become more complicated. There are more providers to choose from when customers reach the checkout, each with its own approach to how and when customers pay, interest and late fees, eligibility assessments, support for vulnerable consumers and, crucially, protection for when something goes wrong. Consequently, it can be a minefield for consumers when it comes to making the right choice.
Consumers deserve the highest level of protection.
The DNA of Fintech is innovation, and as more and more players come into this space, regulation will play a crucial role in ensuring that innovation is matched by good customer outcomes. At Klarna we are customer obsessed and will always advocate for the consumer – something you can read about in Our Promise. They deserve the highest protections no matter what provider or product they choose.
We believe that proportionate regulation and consumer protections should be updated for the digital age rather than relying on rules conceived nearly 50 years ago. This is why we believe it is right that the FCA should review how the sector is regulated – not only to support consumers now, but also to protect them in the future as the sector continues to innovate.
Transparency is key, so customers are clear about any fees or interest, when payments need to be made and what could happen if payments are missed. All providers should be performing eligibility checks to ensure that they are only providing our service to people who they believe can and will pay. If consumers are not happy with how a complaint has been resolved, they should have the right to ask for independent review. They should also have the same purchase protection rights regardless of the type of credit they’ve used.
As a fully licensed bank, Klarna offers a wide range of products. We already operate to very high regulatory and operating standards in the UK which we apply across all our products. However, while some of our products fall under the consumer credit act and are regulated by the FCA, others are not covered under current regulation – much of which was created nearly 50 years ago and isn’t designed for the digital age.
We are committed to working with the industry.
This is why we welcomed Woolard Review into change and innovation in the unsecured credit market, we have fully engaged in this process and we now await the report but we look forward to working together with the FCA, government and the wider sector to build a modern regulatory and supervisory framework that delivers the best outcomes for customers.