Last month, the UK government released a draft legislation that will crack down on buy now, pay later firms, which had previously enjoyed little regulatory hurdles. However, times are changing.
Currencycloud, a developer of international payment solutions and infrastructure, recently commented on the growing regulatory environment for BNPL firms.
The usage levels of BNPL has continued to grow over the past few years. According to Statista, the global transaction value of BNPL in e-commerce has risen from $34bn in 2019 to $120bn in 2021. It is projected to reach $300bn in 2023 and $576bn by 2026.
While the sector is growing, regulators have started to look upon the space to provide greater protections for consumers. Spurred on by reports in the media of consumers entering high levels of debt, regulators are exploring legislation.
Currencycloud said, “BNPL companies operate in a regulatory grey area due to an exemption meant to cover short-term invoice deferral. This means that BNPL firms do not have to be authorized by the Financial Conduct Authority (FCA) as a consumer credit provider or comply with the Consumer Credit Act 1974 (CCA).
“This has given BNPL companies the ability to offer consumers much more flexibility in how they make payments, paying in discrete installments rather than one lump sum. It has been a popular form of credit – and it’s ever-present, available online and at the tap of a finger when online purchases are made.”
However, the UK government is looking to tighten the rules for providers. Earlier in the year, the UK government said it will give financial watchdogs more powers to ‘clamp down’ on BNPL firms. It is exploring regulation that would put these service providers under the full remit of the FCA and give the regulator the power to withdraw firms’ authorisation to operate in the UK. Additionally, BNPL firms will need to comply with regulations such as the upcoming Consumer Duty.
A similar wave of legislation is looking likely around the world. The US Consumer Finance Protection Bureau recently stated that BNPL are not giving the same rights and protections that credit card companies offer.
Currencycloud concluded, “Currencycloud is regulated as an electronic money institution (EMI) in the UK, EU, US, Australia and Canada, and we are steadily growing our base in APAC, meaning we can provide regulatory cover for our existing clients there as we are in step with government regulatory policies as they change.
FinTechs don’t just need to be on top of the new BNPL regulations, they need to be compliant with payments regulations across all jurisdictions. The UK, EU, US, Canada and Australia all have different requirements, and all must be complied with.”
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