UK Clamps Down On ‘Buy Now, Pay Later’ Apps
The UK government has said that it’ll place a close watch on the rising ‘buy now, pay later’ industry that…
The UK government has said that it’ll place a close watch on the rising ‘buy now, pay later’ industry that provides a way for consumers to make steep purchases on credit and then pay back in installments to the lender.
The UK Treasury has said that buy-now-pay-later companies operating in the UK would now fall under the supervision of the country’s Financial Conduct Authority (FCA), which will stipulate regulations like affordability checks before loans are made to consumers.
The placement of buy-now-pay-later firms under closer regulatory watch follows concerns from consumer groups of customers, particularly young ones, getting lured into debt traps with the use of such services. These apps usually work like a credit card by providing loans to users to make purchases but without the steeper regulatory standards that credit card companies are held to.
Providing easy-to-access loans, the main concern is that buy-now-pay-later products could encourage people to spend more than they can afford and fall into trapping debt as a result. A review from the UK’s Financial Conduct Authority estimates that the ‘buy now, pay later’ market in the UK is currently worth £2.7 billion ($3.7 billion), with 5 million of its residents using such products since the start of the pandemic.
“Buy-now-pay-later can be a helpful way to manage your finances but it’s important that consumers are protected as these agreements become more popular,” John Glen, economic secretary to the UK Treasury, penned in a press statement.
“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.”
The UK’s buy-now-pay-later market is dominated by companies like Klarna, itself a Swedish company, and Afterpay, an Australian company that operates the Clearpay brand in the UK. These companies are competing in many regions globally and in the US majorly with Affirm, a company that recently held a blockbuster IPO.