Klarna’s UK chief on looming regulation – and why it might not settle the buy-now pay-later debate
Few topics in fintech have divided opinion and fuelled political debate like buy-now pay-later.
What was five years ago seen as a useful tool to help Gen-Z shoppers split the cost of their Asos orders has veered into a hot cost-of-living-crunch issue as new products are rolled out to split the cost of everything from takeaways to cleaning products.
That debate will likely come to something like a soft conclusion this year. Fears around the sector have largely been stoked by its unregulated status, and moves to bring it within the remit of the City’s watchdogs are in full swing. The Treasury last week closed a key consultation on planned rules and the FCA will soon move in with its own.
But BNPL firms, while supporting the move into regulation, are not yet staying shtum. Bosses at Swedish giant Klarna say work still needs to be done.
“I think the key thing for us now is to make sure that [regulators provide] extra protections that we can’t give consumers,” Klarna’s UK boss Alex Marsh tells City PM this week.
Klarna’s global founder Sebastian Siemiatkowski also doesn’t mince his words on the planned rules, telling City PM in an unexpected email that the Treasury’s plans to copy and paste sections of the 1974 Consumer Credit Act into regulation are a major misstep.
“Making consumers sign a clunky, 50-year-old credit agreement every time they use BNPL is like saying you need to go through the full credit card application every time you swipe your card,” he says.
“Returning customers who have demonstrated responsible use of BNPL should have an experience comparable to using a credit card.
“Who would use a credit card if you had to go through the full application process every time you made a purchase?”
Loopholes
Those comments come after a protracted regulatory process that has seen BNPL firms under fire and strong words traded on both sides of the debate. And Klarna is by no means the only firm to raise concerns over the plans.
As the Treasury closed its consultation last week, Zilch, which offers an FCA regulated BNPL product, sounded the alarm over loopholes that allow so-called ‘loan stacking’, where customers borrow via other means to pay off BNPL debts.
Clearpay and campaign group Which? have flagged the fact that retailers lending off their own balance sheet to provide BNPL products will not be swept up in the rules. The Treasury told City A.M. that penalising casual repayment instalments typically offered by small companies would be “bad for business.”
And City A.M. revealed concern among several BNPL firms last year over how fit for purpose the Financial Ombudsman Service – a central part of the planned rules – would actually be. The fee structure means that firms may be incentivised to simply settle any disputes before they are escalated, effectively shutting it out of the market.
Ready for rules?
For its part Klarna, like other BNPL firms, has insisted it’s not waiting around for rules. Marsh says the firm has heightened its affordability checks on customers, made it “very clear they’re credit products” and “put in place credit checks and reporting to credit bureaus”.
“We’re very confident we’re ready. We already offer regulated credit products in the UK, so we’ve tried to make sure our products operate to that same standard,” he says.
He claims that the products currently function better than credit cards – so often painted as the real baddies of the credit world by Klarna. Against a backdrop of soaring prices, Marsh claims the one-off nature of BNPL products makes them inherently safer than credit cards.
Unsettled bills
However, the heat does tend to stalk Klarna and its peers despite their efforts. Labour MP Stella Creasy has been among the industry’s biggest adversaries and labelled the firms “legal loan sharks” last year, while top money campaigner Martin Lewis has sounded the alarm over some of its latest products.
After Klarna launched a tie-up with Deliveroo, Lewis wrote on twitter that “borrowing should only be if NEEDED, for planned one off budgeted purchase, not a cheeky Nandos.”
A move by Klarna to roll out late fees in the UK, revealed by this newspaper, has also raised talking points in recent months, though Marsh claims it makes customers “more conscious about planning their money”.
What is clear is that despite the looming regulatory clampdown and the hopes of some campaigners, regulation will not close the door on this debate.
Klarna, its BNPL peers, and their adversaries on the other side are likely to be having this conversation for some time to come.