Klarna and Block slam ‘outdated’ UK buy now, pay later proposals

Alex Marsh, UK head of Klarna, said the proposal would lead to longer application periods and create “disproportionate friction” for consumers.

Daniel Harvey Gonzalez | Photo by Getty Images

Executives from two industry giants have vowed to do everything in their power to ease the proposed rules, saying Britain’s plans to regulate the industry are “outdated” and would worsen consumer outcomes. .

Klarna and Block bosses presented the proposal at an event hosted by UK fintech trade body Innovate Finance last week, where the rules, though well-intentioned, will steer people toward more expensive credit options such as credit cards and cars. said it was likely to. Financing plan.

In a consultation paper published in February, the UK government proposed applying part of the existing regulation – the Consumer Credit Act – to buy now and pay later. The currently unregulated buy-now-pay-later model will be overseen by the Financial Conduct Authority.

CCA requires significantly higher levels of disclosure in the fine print of loan agreements. The BNPL company says the requirement will lead to “disproportionate friction” for those seeking short-term credit forms.

Buy Now Pay Later loans allow shoppers to defer payment for a month or split the cost of a purchase into equal monthly installments. What makes them attractive is the ease with which someone can apply for a loan and the fact that they are often interest-free as long as you pay them on time.

Alex Marsh, UK head of Klarna, said on the Innovate panel that if you are currently using the buy now pay later method on the online checkout page, it will take 30 seconds for credit cards. In response, they say they can expect to complete a purchase in a minute and a half. Finance Global Summit. According to Marsh, based on Klarna’s modeling, he could be extended to five minutes under new British rules.

Another disagreement BNPL companies have is that the current framework excludes certain companies from the scope of the law. For example, the government has stated that the scope of the regulation “should be limited to contracts offered by third-party lenders,” providing interest-free short-term credit directly to consumers rather than through third-party lenders. Excludes merchants who provide.

Some companies may choose to exit the UK market after costing. I think it’s a risk. Unlike the red alarm, it’s probably amber.

Adam Jackson

Head of Public Policy, Innovate Finance

Governments take this view because they don’t want individual traders and small businesses to be treated the same as large fintech companies. BNPL companies say they risk creating an unfair playing field.

“We know there are very large retailers and very large technology companies that can offer a buy-now-pay-later service directly to their customers. I don’t think it makes sense to leave it out,” Michael Sardat, international head of public policy at Payments Firm Block, said at the panel.

Block, formerly known as Square, acquired Australian BNPL company Afterpay (known as Clearpay in the UK) in a $29 billion deal in 2020.

On the sidelines of IFGS last week, Innovate Finance’s head of public policy, Adam Jackson, told CNBC that some BNPL firms risk exiting the UK market if current rules continue.

“Once costing is done, some companies may choose to exit the UK market. There is a risk that it will cost too much,” Jackson said in an interview.

“I think it’s a risk. It’s probably yellow, not on alert,” he added.

A Block spokesperson told CNBC, “The current proposal does not reflect the simple and transparent nature of the BNPL product and would create an unlevel playing field.

“The UK has an opportunity to play a leading role in developing BNPL regulations that support innovation, competition and positive consumer outcomes,” the spokesperson added.

A UK Treasury spokeswoman said: “These products, when used properly, can help consumers manage their finances, but we want to strike a balance between them and borrowers so they don’t end up in troubled debt.” said.

“We are proposing a coordinated approach to the information lenders need to provide consumers so that terms are clear and consistent without causing delays,” a Treasury Department spokeswoman said. added..

The Treasury Department began talks on a buy now, pay later bill in February. The deadline for companies to submit their responses was April 11.

The prevalence of BNPL during the pandemic has prompted big companies to rush to offer their own services to consumers. From Apple to Barclays, many big names in the banking and technology industries offer their own interest-free installment products.

This payment method is especially popular among young people. Consumer rights activists are trying to highlight the risks of BNPL to consumers, saying it encourages consumers to spend more than they can afford. They believe the sector urgently needs regulation.

BNPL companies say they welcome the regulation. Klarna has made many changes to its business in anticipation of looming regulation, including formal credit checks of its clients.

Please note that the regulations are unlikely to apply for some time yet. Governments are expected to consider responses to consultations before finalizing proposals. The rules would then have to be voted on by UK MPs. Innovate Finance’s Jackson said he expects it to go into effect within 12 months.

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