Regulation of ‘Buy Now, Pay Later’ Apps

The “buy now, pay later” (BNPL) industry has seen rapid growth in recent years, particularly among Gen Z and millennial consumers. However, with the surging popularity of these services, experts like Zoe Morton, RSM UK’s risk assurance director, argue that regulation is now "long overdue." This call for oversight comes as new data reveals a worrying trend: more than one in ten millennials (13%) and Gen Z (11%) consumers plan to rely on BNPL to cover Christmas expenses.

Monthly active BNPL app users have surged to 11.1% this year, up from 8.4% last year, underscoring the appeal of these payment options as a way to spread the cost of purchases, especially during the holiday season. However, as these apps make it easier to accumulate debt, RSM UK is urging providers to proactively implement safeguards.

Protecting Vulnerable Consumers in a Time of Financial Uncertainty

In the current cost-of-living crisis, Morton stresses the importance of protecting vulnerable consumers who may become overly dependent on credit, warning of the risk of spiraling debt. “We’d urge providers not to wait but to put measures in place as soon as possible,” Morton said. This sentiment is echoed by RSM UK’s partner and head of retail, Jacqui Baker, who notes that the financial strain felt by Gen Z, millennials, and families is often driving them towards BNPL services.

What the Proposed Regulation Entails

Under proposed new regulations, the Financial Conduct Authority (FCA) will require BNPL providers to conduct mandatory affordability checks, ensuring customers are well-informed before entering loan agreements. The new rules also stipulate that financial promotions by unauthorized merchants will need to be approved by an authorized firm, creating an added layer of consumer protection.

As BNPL continues to be a preferred payment option, particularly for seasonal spending, the introduction of regulation aims to foster a safer environment for consumers. The call to action from RSM UK highlights the importance of aligning retail practices with these upcoming regulations, potentially enhancing customer rights, including options for returns on faulty goods.

As BNPL continues to transform retail finance, providers, retailers, and regulators alike must navigate these changes to prevent debt and protect consumers, particularly the most vulnerable, during challenging economic times.

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