Inside the boom in buy-it-now and late-payment businesses amid new regulations

  • A boom in services that let you “buy now, pay later” has raised concerns that young people are going into debt.
  • Companies like Klarna allow online shoppers to spread payments at little or no cost over weeks or months.
  • The UK government has just said it will regulate the space on the back of the Financial Conduct Authority’s Woolard review in the unsecured credit market.
  • By 2025, buy-now and on-payment volumes in Europe are expected to reach $ 357 billion.
  • Visit the Business Insider homepage for more stories.

Regulation is coming for the booming ‘buy now, pay later’ industry as usage has exploded during the coronavirus pandemic.

On Tuesday, the British government announced its intention to regulate the sector, after a report produced by the former chief of the financial regulator, Christopher Woolard.

In a letter to the government, Woolard argued that products to buy now and pay for later had exploded – and could be “harmful” if left unregulated.

He added that it was possible for the most vulnerable users to rack up thousands of pounds in debt and late payment fees without a proper credit check.

At a press conference Tuesday, Woolard noted that “companies are flying blind” when it comes to visibility.

He said if a customer is unable to purchase a product through a preferred supplier, many sites offer several other options for buy it now and subsequent payment at checkout. This could mean that, without any checks, a client could likely be in arrears with many different companies.

“Change here cannot come soon enough,” he added.

Buy now pay later explode

Buy-It-Now and Pay-On Services are a simple and, according to companies, a safer way for consumers to shop online.

In its simplest form, consumers are given the option of dividing the cost of an item into primarily interest-free installments over a number of months or weeks, depending on the vendor.

Rather than using a credit card, which forces users to pay high annual rates, buy now, pay later is designed to avoid expensive prices. Yet the consequences of missed payments vary from vendor to vendor, ranging from freezing subsequent purchases to late collection costs, and even collection agencies.

Major names in the space include Australian state-owned company Afterpay (known as Clearpay), Affirm in the US, Swedish decacorn Klarna, and payments giant PayPal.

Klarna is Europe’s biggest actor and has been touted as something of a tech darling. Last year, Swedish startup raised huge $ 650 million round at a valuation of $ 10.65 billion ahead of a potential future IPO.

The growth of Klarna and others in recent months has been in part due to foreclosure measures closing physical stores and leading to an e-commerce boom.

Record amounts of venture capital funding have poured into the industry. By 2025, buy-now and subsequent payment volumes in Europe are expected to reach $ 357 billion, which is almost half of the total global estimate and 30% of all estimated e-commerce spending, according to research by Kaleido Intelligence.

Philippe Zilch

Phillip Belamant, CEO of UK buy-now and late-pay provider Zilch, which recently raised £ 30million in venture capital.


Europe as a market is expected to account for up to 50% of buy-now and pay-out spending later in the coming years, with the vast majority of users under 35.

As with all credit-based markets, leverage risk remains high.

Martin Lewis, the British consumer credit expert, called for a crackdown on the sector early on, saying it targets those under 30 through social media.

In comments to Insider, he also drew a comparison with payday loan providers, who were accused of dragging consumers into a debt spiral.

“There has been an explosion of ready to buy now and pay later in recent years, often aimed at young people, pushed through Instagram and social media, as if it were some form of therapy. lifestyle. This is not the case. ” Lewis told Insider. “It’s debt. In fact, it’s the fastest growing form of credit in the UK and regulation is crucial.”

“For years, I and others have made similar calls about payday loans – they too were supposed to ‘fill a gap’, and about ‘technology, not borrowing’ – and delays treatment that led to financial nightmares for millions. “

End December, UK advertising regulator banned four influencer posts on Instagram sponsored by Klarna, claiming they “irresponsibly” linked her service to happiness.

Yet, so far buy-it-now lenders have not been regulated by the Financial Conduct Authority (FCA) because they don’t charge interest. This means that the regulator cannot intervene if clients are treated unfairly, even when the wording around the risks involved is minimal.

Campaigners such as Lewis became more alarmed when it became clear that users were relying on buy it now and later payment services to get through Christmas and the pandemic.

By Christmas 2020, one in four UK consumers used a Buy It Now credit program to pay later to pay for their purchases – around 40% of purchases, according to research by credit reporting firm Credit Karma.

A survey carried out by a management consulting firm Capco last November showed that 32% of respondents used buy now, pay later more due to Covid-19 and 62% of respondents said buying, now paying later leads them to spend more than they do would do it otherwise.

More importantly, 50% of those surveyed between the ages of 18 and 34 missed a buy-it-now payment and a subsequent payment. While lenders don’t charge interest, late payment fees can be steep, up to £ 12 ($ 16.4).

Pressure from lawmakers and activists

It took several months of public pressure for the government to change its mind on the regulations.

Earlier in January, a group of 70 members of the British parliament, led by Labor MP Stella Creasy, tabled an amendment to the Financial Services Bill in an attempt to get the Treasury to introduce stricter regulations. The motion was defeated at the time.

But Economic Secretary to the Treasury John Glen, announcing the regulatory plan, said in a statement Tuesday: The scrutiny and controls carried out by providers tend to focus on the risk to the business rather than its own. affordable cost to the customer. “

While the government has yet to announce details, activists are thrilled.

Responding to the ruling, Creasy said: “The FCA has confirmed what we have warned the government about over the past year – that the behavior of the buy-now and late-pay industry poses a clear risk. for consumers and requires urgent action.

“The minister’s turnaround to tackle these businesses is welcome and must now be an urgent government priority – with evidence that millions of people have used this form of credit to pay for Christmas, regulation cannot arrive early enough. “

Like Lewis, Creasy has raised the specter of Wonga, the notorious former payday lender who has been touted as the star kid of predatory loans.

Buy now, pay later Businesses support regulation

Despite all the clamor, buy-it-now and later-pay businesses have consistently said they are in favor of further regulation, welcoming consistency that would require all vendors to provide full transparency to users.

In a recent blog post, Alex Marsh, Director of Klarna UK, wrote: “We believe that proportionate regulation and consumer protections should be updated for the digital age rather than relying on rules designed almost 50 years ago.”

And a Klarna spokesperson added to Insider, “In the buy-it-now and pay-later industry, there are big differences between vendors, in terms of their approach to payment schedules, interest, fees. late fees, eligibility assessments, support for vulnerable consumers and, most importantly, protections in the event of a problem.

“This is why it is vital that regulations are updated for the digital age, to ensure that consumers are protected no matter which provider they choose.”

Philip Belamant, chief executive of UK start-up Buy-now, pay-ulter Zilch, said his own company gives users detailed terms of use and details on how its product works. However, he added, small, fast fashion brands sometimes used buy now, pay later as a sort of marketing tactic, offering discounts in addition to installments to attract consumers who might not understand the consequences of payments. missed.

“This [buy now, pay later] needs to evolve to a position where there is more regulation in the space, “he told Insider.” There is a huge amount of protection built into buy now, pay later already, but companies are doing it. all they can about affordability and visibility?

Damian Kassabgi, Executive Vice President of Public Policy at Clearpay, said: “We welcome today’s recommendations and look forward to working with the FCA, government and stakeholders to leverage the consumer protections that we are already providing to create the right regulations for the industry.

“It has always been Clearpay’s view that consumers will be better served by products designed with strong warranties and appropriate industry regulation under the oversight of the FCA. “


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