The UK has an opportunity to lead the world on BNPL regulation. Does it risk falling behind?

At this year’s edition of London Tech Week held last month, advocates of the city’s tech scene once again convened to showcase its benefits as a global hub for innovative business.  

But, while much of the conversation was understandably focused on AI’s role in the future economy, this year’s event also marked a critical moment for the UK’s pioneering fintech sector.  

Recent comments from Revolut founder Nikolay Storonsky, as well as remarks made by Monzo founder Tom Blomfield on his decision to leave London for San Francisco, have prompted a much-needed, still-ongoing debate about London’s viability as a futureproof hub for innovative companies – with regulation emerging as a particular pain point. 

The country’s Buy Now, Pay Later (BNPL) sector is an important part of this very story.  

BNPL has driven a fundamental shift in how consumers spend. This year alone, Adobe Analytics has reported a growth in online spend with BNPL from 12% in January to 16% in April.  

Needless to say, BNPL regulation needs to be absolutely watertight to ensure that consumers can access the credit with confidence.  

Much of the criticism waged against BNPL in the past has been based on the absence of sector regulation. Any good offering must prioritise consumer welfare, which is why, along with many others in the sector, we’ve been campaigning for fair and proportionate regulation since we entered the market.  

But when the draft legislation was eventually announced in February, it became clear that the consequences it could have for providers and their ability to provide good customer service had not been adequately considered.  

For example, one of the most concerning elements of the legislation is the loophole that exempts any direct-to-consumer offerings from the regulatory parameters.  

On one hand, this is to the detriment of consumers, who won’t benefit from official protection if any adverse circumstances arise through payments made via these offers. 

But, on the other hand, it creates an unlevel playing field in the market, especially at a time when many fintechs have only just made it through the drop in funding, and subsequent market consolidation, that has been witnessed in the UK over the last 18 months.   

This is a policy oversight, and risks weakening the UK’s wider fintech ecosystem by undermining the smaller companies that drive the innovation it relies on for success.  

This wholly undesirable outcome will also be compounded by the inappropriate nature of some of the regulatory hoops themselves.  

Certain elements of the proposals appear to have been copied and pasted directly from the Consumer Credit Act – which will turn 50 next year. 

Needless to say, they do not exactly blend seamlessly with the 21st-century technology powering today’s BNPL providers, nor with the smartphones that the majority of consumers prefer to manage their money from. 

One clear example of the regulation not being fit-for-purpose is the obligation to provide Notices of Sums in Arrears (NOSIAs) to any customer who falls behind on a payment. In the five decades that have passed since the Consumer Credit Act came into force, modern payment companies have evolved to communicate with customers in real-time, and already have rapid, intuitive and innovative features in place.  

I can’t speak for all BNPLs, but at Clearpay, we send timely payment reminders by text and email, and automatically pause an account as soon as a single payment is missed.  

Under the proposed regulation, however, legal notices in relation to missed payments would potentially be received after a BNPL transaction has concluded. This wouldn’t just make them completely obsolete, but could potentially be confusing and frustrating for consumers.  

And the overhead that this obligation poses for BNPL fintechs is a heavy blow, too – one that could have knock-on effects for Britain’s retail sector. 

While increasing numbers of SMBs in retail are developing more flexible payment offerings to appeal to spend-savvy customers, many are also reliant on the other forms of support their BNPL partnerships provide.  

BNPL fintechs often act as digital marketing partners, for example, with brand apps allowing SMBs to expand their reach exponentially among consumers. 

Beyond that, these trusted fintech partners also allow SMBs access to the insights garnered from their vast reserves of data, enabling them to accurately track performance and fine-tune their strategies accordingly.  

Amid the current circumstances, resources like these aren’t just a luxury – they’re a lifeline.  

It’s clear that the fates of Britain’s BNPL fintechs and independent retailers are deeply intertwined. Regulation that is unfit for purpose will come at a severe cost to both – and ultimately, consumers.  

Ultimately, the fintech start-ups who pioneered the BNPL model did so based on the principle of economic empowerment, seeking to put an end to a system of credit based on revolving debt.  

They should be supported by a regulatory regime that recognises this potential, fosters world-class innovation and prioritises customer service.  

If it chooses not to deliver exactly that, the UK risks overlooking the importance of one of its greatest assets in its quest to become a ‘global science and technology superpower’ - its talent-rich fintech scene.