BNPL and Big Tech shake things up

Unsurprisingly, consumer credit regulation plays an essential part in the lending market. A level playing field in consumer credit is a crucial principle. Firms of different sizes and formats and providing various products need access to the market.

We can see some areas where we may come off track with the current discussions about regulating Buy Now Pay Later (BNPL) and Big Tech entering into financial services.

These developments open up some great discussions about how consumer credit is regulated. They pose some challenges for the Financial Conduct Authority (FCA).

More BNPL firms come into FCA regulation, but BNPL is still unregulated

This issue came back to the front of my mind with the end of a set of temporary permissions that some firms had to provide FCA-regulated products while sitting out the regulatory regime. Those firms with regulated credit products must now have the correct FCA permissions. It has brought in some BNPL firms like Klarna into the FCA orbit.

The vital point is that the BNPL product is still not regulated by the FCA. It is interesting to see what is happening, made more difficult by rumour and speculation. Regulation of BNPL continues to be a hazy area. There have always been regulated firms providing the unregulated BNPL product, including some CCTA members.

We need clarity and want a level playing field for all consumer credit firms. Some firms, though far fewer, still say that BNPL is not a credit product and should continue to be a non-regulated product.

Did the Government wobble on regulation?

Our last City Minister, Andrew Griffith, was thought to have been floating a lighter regime for BNPL, and indeed, we had heard him say directly that this was a cheap form of accessible credit.

I took from what we heard that this was a way of filling some of the growing gap between supply and demand. However, that raises questions about that level playing field in consumer credit. The flag was raised, and many organisations rushed to join the battle.

It is also fair to say that this pause in regulation raised considerable concerns amongst the debt charities. There were joint letters of complaint and plenty of words on why BNPL regulation should be pushed on.

It will be interesting to see whether the new Minister is sceptical or returns to the more traditional view.

Our long-held position is that we should try to keep the regulatory burden to a minimum so we can certainly understand those promoting new products looking to develop their case for exception. However, we need an even approach.

Big Tech enters

That theme continues into the FCA’s interest in Big Tech potentially entering into financial services. There are some big questions about whether those firms can create a market advantage from the large amounts of data they hold. A debate that we know will roll into 2024 and beyond.

We know that data is an integral part of the market. We can only identify the need, make lending decisions and provide the right service through customer information. In such difficult times, this might also help us identify vulnerabilities.

Data is an area of competition. Getting this right is an area of competitive advantage.

It is all about culture

What will be just as interesting will be the culture discussion.

The FCA has been clear that a strong, positive culture can foster ethical and responsible conduct, while a weak or negative culture can lead to misconduct and harm to consumers.

It has been an area of focus for years, with the Senior Manager & Certification Regime being the most obvious way in which they can hold leaders responsible for culture. Alongside this, there have been firm reviews and actions against those not meeting the standard.

Does the FCA have the power to influence these companies?

In a Big Tech company, who will have the most influence? Will it be those in the finance division? How will this fit global tech companies with a commercial interest in many different markets? Are they finance companies or tech companies?

Challenging the FCA

Both of these areas – BNPL and Big Tech – will be challenging for the FCA and, at a higher level, the UK Government. While the FCA will be interested in the consumer credit market, Treasury will consider what this means for the wider community.

We mustn’t lose sight of a level playing field in consumer credit. It will all be about ensuring the regulation fits any product. It will be about getting recognition from these new firms that they are part of the consumer credit world.