UK to regulate buy now, pay later firms like Klarna and Affirm

The “buy now, pay later” trend has been gaining popularity, with companies like Klarna and Afterpay allowing consumers to make purchases and defer payment until later. However, concerns have been raised about the lack of regulation in this sector, leading the U.K. government to propose new rules to bring short-term loans under formal regulations.

Fintech firms like Klarna and Block’s Afterpay have been offering interest-free financing on a wide range of products, from fashion to food deliveries. This has created a competitive market, with U.S. player Affirm entering the U.K. market just last year. The government aims to address the “wild west” nature of this sector with the new rules, which are designed to protect consumers from debt traps and provide clarity for the industry to invest, grow, and create jobs.

Under the proposed regulations, buy now, pay later firms will be required to conduct upfront checks to ensure that customers can repay what they borrow. Additionally, it will be easier for consumers to access refunds, and complaints can be escalated to the Financial Ombudsman for resolution.

Both Klarna and Clearpay, the U.K. arm of Afterpay, have expressed support for the regulatory measures. They believe that regulation will provide consistency and clarity for the industry, setting standards for all providers and creating a sustainable foundation for the future of buy now, pay later services.

While the industry supports regulation, there are concerns about outdated rules being applied to their business models. The government plans to adapt the Consumer Credit Act to create a modern framework that reflects how people borrow in today’s digital age.

Overall, the proposed regulations aim to strike a balance between consumer protection and industry growth in the buy now, pay later sector. It is expected that these rules will come into force next year, providing a framework for a more transparent and sustainable industry moving forward.