A new government must collaborate with industry now for effective Buy Now, Pay Later regulation later

A few weeks ago, the Labour Party published its long-awaited financial services review at its Annual Business Conference in London. 

It was promising to see policies that were hinted at last year take more concrete shape. Most notable were the pledges made to regulate the country’s thriving Buy Now, Pay Later (BNPL) sector, and, more broadly, to build on the Kalifa Review’s recommendations to support the growth of UK fintech at large.

The average UK fintech firm grew by 20% last year – regulators eager to support the long-term health of our economy must do everything possible to ensure this growth trajectory continues. But, when it comes to BNPL, the impetus is even more urgent.

Research from Clearpay and Oxford Economics indicated that one in three Brits used BNPL in the 12 months prior to August 2023, with 78% of users reporting that they find it cheaper than alternative credit options. In January 2024, BNPL accounted for 15% of the total £8.1bn spent online in the UK. 

The shift triggered by BNPL’s entry into the UK credit market is now undeniable. While initially fuelled by risk-averse Gen Z and millennials, whose parents had been caught up in the global financial crisis, BNPL has since become a staple payment and budgeting tool for shoppers of all generations. 

While progress on regulation has not kept up with the sector’s growth, it has shown promise. Certain features of the draft legislation published in the spring last year were laudable: providing consumers access to the Financial Ombudsman Service and ‘section 75’ protection, were sensible recommendations.

But other features were concerning. Crucially, the exemptions for large retailers and big tech companies, enabling them to develop unregulated BNPL offerings, creates a critical loophole for these providers at the expense of the industry: any BNPL product must guarantee consumers the same protections, no matter who it comes from.

Another core challenge facing lawmakers is ensuring that the protection reflects today’s 21st-century credit market. For example, the previous plans to apply elements of the 50-year-old Consumer Credit Act to today’s digitally-enabled consumers - such as obligating providers to send out default notices by post, and subjecting customers to lengthy credit agreements with every purchase made - were simply not fit for purpose. 

It is encouraging to see the Conservatives have begun a review of the Consumer Credit Act and it is right that Labour have now committed to reforming this outdated legislation entirely if they form the next government, and develop a new legal framework for consumer credit centred on delivering good customer outcomes.

Regulatory rules that prioritise consumers will deliver the best approach so the next government must ensure that any new measures reasonably reflect how BNPL products actually work in practice.

At Clearpay, for example, we send timely payment reminders by text and email, and automatically pause an account as soon as a single payment is missed. Pre-existing protections like these are an important part of the puzzle that policymakers must remember, as they set about building a framework that balances consumer rights and market innovation.

Regulation – or lack thereof – of BNPL has been a source of much debate both within and outside of Westminster and a legislative framework for the sector must be set sooner rather than later.

By collaborating with industry, the next government can create the best way forward for the sector and all its players – and, most importantly, for its consumers.