‘Buy now pay later’ must be matched by genuine action

In February the FCA published the Woolard Review. But what will greater regulation mean for BNPL lenders — and for their customers?

• Growth of the BNPL sector has trebled, with five million consumers spending £2.7 billion using the service in 2020.
• But with ease and flexibility comes compromise: two fifths of BNPL shoppers revealed recently that they were concerned about their ability to repay.
• In November 2020, the FCA called for input into a review of the unsecured credit market. The findings were published this month setting out how regulation can better support the unsecured lending market.
• Consumers will be required to complete affordability checks and lenders will need to adapt their processes accordingly. High quality credit information was also highlighted as a critical factor.

Following the release of the review, Aire’s Founder and CEO, Aneesh Varma, spoke to City A.M. to explain how BNPL lenders must approach affordability checks fairly to meet the expectations of today’s consumer.

Here are our highlights:

1. Regulatory intention doesn’t protect consumers

‘Neither does sector enthusiasm. It doesn’t stop ordinary people taking out unaffordable debt and spiralling into financial difficulty.’

With the FCA making it clear that it won’t be providing a prescriptive approach to how BNPL lenders interpret the regulation, the responsibility will come down to the lender to interpret the rules appropriately.

2. At the heart of the issue, sits better data

‘What is stressed is the importance, for both lenders and for the public, of high quality credit information.’

BNPL lenders have stated already that the rate of change will be driven by the speed at which the three traditional credit bureaux can help, with legacy infrastructure cited as a significant blocker.

The timeline for implementation, says Klarna, rests with them.

3. Customer experience will remain paramount

‘BNPL providers are unlikely to be anything but exacting.’

With exceptional user experience key to the growth of these brands to date, affordability checks will need to be as smooth as these companies’ advertising.

At Aire, we refer to this balance in credit as ‘thoughtful friction’. To meet the needs of the consumer, affordability assessments must be seamless and intuitive. Information must be gathered dynamically from the consumer and in real-time.

Anything less isn’t good enough. We must allow the consumer to represent themselves fairly in the process and to be heard.

4. The time for innovation is now

‘If the traditional credit bureaux can’t rise to the challenge, it’s time for the fintechs who can.’

Few BNPL customers today will be aware of the planned changes to how this new service that has shifted their shopping habits so much in recent years is set to evolve. Amidst the noise, it’s important we remember the intended beneficiary here — the consumer.

The full article was originally published by City A.M. in February 2021.