The government said on Monday that “buy now, pay later” (BNPL) companies will be required to do affordability checks, obtain clearance from the Financial Conduct Authority (FCA), and ensure that advertisements are fair and transparent.
Unregulated BNPL enterprises mainly offer on-the-spot interest-free short-term loans to stretch payments for retail products such as apparel and have grown in popularity significantly, according to the government.
The United Kingdom Announces Steps To Properly Regulate ‘Buy Now, Pay Later’ Businesses
“Buy-Now, Pay-Later may be a good method to manage your money,” said John Glen, the finance ministry’s economic secretary. “However, we need to guarantee that consumers can embrace innovative products and services with the proper protections in place.”
The government stated that it will provide a consultation on draught legislation by the end of this year and that secondary legislation, which is used to fill in the specifics of Acts, would be laid by the middle of 2023. The FCA would then consult on the sector’s rules, according to the statement. (Elizabeth Piper contributed reporting, and David Evans edited the piece.)
BNPL plans are essentially a reversed layaway plan. You receive your thing up front rather than making payments over time to qualify for a purchase and then make your payments on time. BNPL programs exist in a variety of shapes and sizes, ranging from zero to low-interest rates to self-selected payment schedules and, in some circumstances, no late fees. The BNPL applications are generally simple to use, with modest fees and interest rates, and credit limits that allow for everyday transactions.
The standard plan is to pay 25% of the amount up front and the remainder in three equal installments every two weeks. Payment terms, such as the number of installments, the amount required at the time of purchase, the interest rate, and late penalties, may vary.
Unlike a credit card, a BNPL app does not require a certain credit score. The benefit of a BNPL payment plan for retailers is that it eliminates the need to discount a product over time. The profit margins, as well as the price tags, remain unaltered. Furthermore, BNPL suppliers assume the risk of default.
The option to buy now and pay later is usually available throughout the checkout process. Klarna, the BNPL behemoth, recently tested a beta version of a browser plugin, substantially decreasing the barrier to utilizing the service. This browser extension, which is powered by Piggy, not only allows you to pay in installments but also allows you to automatically apply coupons and cashback incentives to your purchases.
In the market, there are an increasing number of BNPL service providers. Affirm, Sezzle, Afterpay, Splitit, Perpay, PayPal Pay in 4, and Klarna are the most popular suppliers. The largest of them are Klarna, Afterpay, and Affirm. Klarna, a Swedish BNPL provider, had around 90 million active customers as of June 2021. Affirm has seven million active users, but Afterpay has 16 million.
In 2021, about three-fifths (57%) of adults aged 18 to 50 in the United Kingdom utilized BNPL programs. Northwestern Europe accounted for eight of the top ten global BNPL markets in 2020. In Sweden and Germany, for example, the market share of BNPL services in domestic e-commerce payments was about 10 times larger than the equivalent market share in worldwide e-commerce payments. This is most likely owing to the success of Klarna, one of Germany’s most popular online payment methods in 2020.
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