Monday 26 July 2021 2:31 pm

Startups urge caution over buy now pay later regulation

British startups have urged caution over the City watchdog’s plans to regulate the £2.7bn buy now pay later market.

The Financial Conduct Authority (FCA) is set to crack down on companies such as Klarna and Clearpay after the number of BNPL transactions across the UK tripled last year.

But a lobby group representing startups has called for a “robust and proportionate” framework to regulate the sector, warning that overly-tough rules could stifle innovation.

Buy now pay later services have grown rapidly during the pandemic thanks to their popularity among online shoppers using retailers such as Asos, Topshop and JD Sports.

BNPL enables buyers to delay payment with no incurred interest, for up to 30 days after purchase, or alternatively to spread repayment across six weeks to four month installments.

But it has come under fire from campaigners warning that it can encourage consumers — particularly younger shoppers — to rack up debts.

The sector is not currently regulated and relies on an exemption from consumer credit rules, though this has led to inconsistent practices.

Following the Woolard review published earlier this year, the FCA said it would bring in new rules including forcing providers to carry out affordability checks. A consultation is expected in the next few months.

In its report published today the Coalition for a Digital Economy (Coadec) hit back at the idea of “hard credit checks”, calling instead for proportionate affordability tracking.

It said new regulations should target providers rather than retailers and called for tighter consumer communications and a better redress model for complaints.

“While the Woolard Review was a welcome catalyst for change, the answer does not lie with stunting innovation and over-prescription,” said Charlie Mercer, head of economic policy at Coadec.

“Instead, regulation should be proportionate and focused on consumer outcomes: this report offers a vision of what this could look like. Getting this wrong now could lead to impairing or even killing off innovation in the consumer credit market.”