Buy Now, Pay Later (BNPL) is one of the biggest eCommerce trends that has gained impressive prominence over the past few years. While being an accessible way for consumers to acquire products that otherwise would have been difficult to afford, it has also raised concerns regarding the inability of some people to cover the loans they take out.
The exponential growth of the BNPL payment method, the lack of borrower protection it offers, and the need for better financial control among certain categories of shoppers have urged regulatory bodies to take matters into their hands. For instance, the UK legislative authorities are already working on a new set of guidelines expected to go live by mid-2023.
Read ahead to find out what the current situation with BNPL is in the UK and other countries, what to expect from the upcoming regulations, and how to prepare your business for these changes!
BNPL has experienced a meteoric rise during the pandemic and is set to continue this upward trend. Here is some statistical data to illustrate it:
Looking at these figures, it’s easy to understand how much of an impact BNPL has on eCommerce today.
However, according to a recent survey, while 60% of respondents have used a BNPL service over the course of the pandemic, 66% consider them financially risky. This is most likely due to the fact that BNPL causes consumers to spend more than they can afford4.
In fact, only 1 in 12 people use BNPL to cover essentials, such as food and toiletries. The top three purchase categories with this service are:
The results of such shopping activity are somewhat disturbing, with 2 in 5 shoppers in the UK reporting they had to borrow funds to clear BNPL debt.
There are currently more than 150 Buy Now, Pay Later providers across the globe, yet in virtually every country where this payment method is offered, it remains exempt from local laws and regulations.
Here are some insights into what BNPL regulations nowadays look like in some countries:
While most reputable BNPL providers globally stick to codes of best practice, there are fears of a brewing financial scandal. Thus, most major economies have begun building plans to regulate the provision of BNPL services.
One of the latest BNPL legislation initiatives was launched in the UK on 20 June 2022. On that day, the country’s authorities published an official response to calls for the regulation of Buy Now, Pay Later services following a consultation in October 2021, when the potential consumer risks associated with such services were discussed.
Besides, advertising campaigns promoting BNPL loans will be subject to the Financial Promotion Regime. This means that the authorities will ensure they are not misleading or unfair. What’s more, shoppers will have an option to file complaints to the Financial Ombudsman Service if they encounter issues with BNPL purchases.
The plan is that the second consultation paper containing draft legislation will go live already by the end of 2022, while secondary legislation is expected by mid-2023. The Financial Conduct Authority will continue monitoring the industry and conduct further consultations for improving the regulations.
Legislation regulating Buy Now, Pay Later operations has been a long-awaited measure. But what do these measures mean for the key players participating in such transactions?
In the short term, the upcoming regulations may affect the attractiveness of BNPL services, as there will be credit checks introduced to some extent. However, in the long run, laws that govern this payment method will boost trust towards it and bring a lot of additional benefits to consumers, including:
The need for such measures is especially critical when it comes to younger generations, which comprise the biggest part of BNPL users - 61% of shoppers aged 18-24 claim to have used this payment method5.
According to a recent survey conducted in the UK, business leaders believe that:
3. BNPL Providers
Similar to business owners, BNPL providers will have to deal with additional administrative tasks and face more responsibilities in terms of consumer protection. However, the regulations will provide a reputational boost for them and minimize the instances of legal action that was a common practice before the introduction of regulations due to the undefined code of conduct for such companies.
As the governments are actively working on BNPL legislation, it’s essential for vendors to prepare for the new rules. The are several steps that can be undertaken to be ready for the upcoming regulations are:
The introduction of BNPL regulations across the globe is inevitable, so it is critical to adopt a holistic approach and prepare for them in advance. Choose BNPL providers wisely and follow the tips mentioned above to ensure safe and transparent shopping experiences for consumers.
1 - Exploding Topics - 12 Amazing BNPL Stats (2022)
2 - Bankrate - 2022 Buy now, pay later statistics
3 - Insider intelligence - Buy Now Pay Later Report
4 - C+R Research - Buy Now, Pay Later Statistics and User Habits
5 - PYMNTS - Millennials, Gen Z Fueling BNPL Use