The UK's buy now, pay later (BNPL) market has undergone a staggering transformation in recent years, with transactions rising from £60m in 2017 to a massive £13bn last year, according to the Treasury. This growth trajectory is set to be severely impacted by new regulations, which are expected to cost the sector a substantial £3bn. The Financial Conduct Authority (FCA) estimates that BNPL providers will incur a £1.4bn hit, comprised of lower purchase volumes and higher system costs.
The introduction of stricter checks under the new framework is being welcomed by established players such as Klarna, Zilch, and Clearpay, despite the significant price tag. However, smaller fintechs may struggle to absorb the costs of authorisation and ongoing compliance, potentially paving the way for larger competitors to dominate the market.
The regulations will introduce stricter affordability assessments, creditworthiness evaluations, and direct compliance costs, leading to a £243m drop in revenue collected from late fees. Merchants may also face a similar-sized hit from lost profits as a result of reduced transaction volumes.
Financial inclusion group Fair4All Finance estimates that up to 30% of the nearly 11m UK consumers using BNPL services may be excluded due to these changes, which could have far-reaching implications for financial inclusion in the country.
The new regulations will also bring top bosses at BNPL firms under the FCA's senior managers regime, making them individually accountable for conduct and subject to fines if rules are breached. This increased accountability is set to add an extra layer of complexity to an already heavily regulated sector.