The UK’s Financial Conduct Authority has been called in to regulate the agreements used by buy-now-pay-later companies like Klarna and Clearpay, after a government review found potential for consumer harm.
Earlier this month, the Treasury declared that fintech lenders using these channels would be required to carry out affordability checks on customers to ensure that the vulnerable are treated fairly.
The move has been made following a vast growth in popularity for buy-now-pay-later deals over the course of 2020, in which the volume of transactions tripled. Klarna – a Swedish fintech company – has become one of the largest operators in the area.
According to PE News, the Treasury decided that the sector needed regulating following a review of the unsecured credit market by the ex-FCA interim head Christopher Woolard, who recommended it be brought under FCA supervision.
“Buy-now-pay-later can be a helpful way to manage your finances but it is important that consumers are protected as these agreements become more popular,” said John Glen, economic secretary to the Treasury.
“By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford – the same protections you’d expect with other loans.”
In toy industry terms, toy retailers have been among the many to spot the opportunity that buy-now-pay-later platforms offer them and their customers. Last summer, the UK’s fastest growing omni-channel retailer, The Entertainer took on Klarna as a method of customer payments. The platform has been widely credited with offering consumers ‘a new and preferred method of payment.’
Last month, the independent retailer, Giddy Goat Toys joined the Klarna platform as a means of ‘looking at different ways of getting to the consumer while physical shops are shut.’
“I tried SEO and short of paying a fortune on PPC I just couldn’t ever get my website to show on the Google rankings, so by listing on the marketplace sites and getting listed on the Clearpay and Klarna directories, they are basically doing that for me,” Giddy Goat Toys’ owner, Amanda Alexander told ToyNews.
“It’s also offering my customers a different way of being able to pay. It seems that the younger generation prefer the Buy Now Pay Later model to using credit cards.”
From a retail perspective, the BNPL payment platforms have been championed for helping smaller, independently run store market themselves and compete against the bigger players who have been sweeping up in the online shopping sector over the past year.
“As a retailer it also takes the risk away,” continued Alexander. “They take a commission payment but they take all the risk of credit card fraud or payment default, plus they’re doing the marketing for you.
“Anything that helps at the moment, we could have to keep our stores closed for weeks or even months, so I’m just trying to keep afloat.”