How should 'buy now, pay later' be regulated?

How should 'buy now, pay later' be regulated?

Having a loosely regulated 'buy now, pay later' industry keeps consumers away from high-cost credit products, the chief executive of provider Zilch said as he set out his thoughts on the government's recent consultation.

The UK government is currently considering a consultation on proposals which will see the controversial lenders brought under the FCA's remit, which was open to mid-April this year.

As of 2022, more than 17mn consumers in the UK have used BNPL services. Some 54 per cent of millennials have used a BNPL service.

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Some mortgage brokers have warned first-time buyers need to "change their mentality" to debt as the growth of BNPL makes affordability checks more awkward.

Speaking on this week’s FTAdviser podcast, Philip Belamant of Zilch admitted BNPL should be regulated, including mandating credit checks in some form for all deferred payments, meaning providers should be regulated against continuing to lend to customers who cannot afford repaying what they've already borrowed. 

“This is where payday lenders got themselves and their customers into big trouble – refinancing, I think, was the word they all used to use.”

The trend towards BNPL has become so widespread that Apple has launched its own BNPL product.

But Belamant said BNPL was a debt instrument and ultimately should be regulated, calling the government's consultation entirely sensible.

It’s equally crucial to avoid over-regulation, he warned, lest tightened underwriting and KYC rules push customers back to high-cost credit options. 

Matt Cross of Elmstone Financial Planning said: "The reality from my side, is if you can't afford to buy it in cash, you probably shouldn't buy. My starting point with all this is if, if there's a product that you want and you can't actually afford it, then reconsider buying it.

"Credit hasn't changed in so many years now, and actually the interest rate is huge and people can get into a position quite quickly where the interest they are paying is as much as they're paying off the credit card. And you can get in a really vicious cycle there, which can cause a lot of problems."

Cross said the government's focus should be on BNPL providers which didn't even do credit checks.


What do you think about the issues raised by this story? Email us on ftadviser.newsdesk@ft.com to let us know