We think the FCA announcement on Buy Now Pay Later (BNPL) activity is interesting for several reasons. First, it is fascinating that over 1 in 4 adults had used BNPL in the second half of last year. This raises some critical questions about the regulation of BNPL.

The FCA believes about 14 million people used BNPL in the second half of last year (2022). That is about 27% of the population over six months, compared with 17% in the preceding twelve months. If we want to mess around with the statistics, then that suggests that we are heading towards doubling earlier figures.

BNPL increases – meanwhile, credit supply drops

I think that points to a tangible need for credit when the credit supply for many communities is withdrawn.

We know from our work that we have seen a reduction, especially in working-class communities. Home-collected credit is a product that tens of millions of individuals have used over the last century. Over the last few years, we have seen it drop around 80%-90% in lending. That drop is due to regulatory intervention while demand remains as high as ever.

Unfortunately, the consequence of that is the growth of illegal lending. Fair4All did great research in their report, As One Door Closes. They built upon the work of the Centre for Social Justice. In their study, they revealed that an estimated 1.1 million people in England use illegal lenders.

Like all credit products, BNPL can deliver significant benefits for UK families. It can help close the gap when appropriately used.

We need a more significant discussion about access to credit and supply and demand.

The regulation of BNPL

Of course, another standout is that the FCA has again used powers under the Consumer Rights Act 2015. That is because BNPL continues to be unregulated like other credit products.

A more cynical observer might suggest these concerns around the contract are not the most significant issues when discussing BNPL. There are bigger matters.

And for transparency, the Consumer Credit Trade Association does have members that provide BNPL products. It is a small group within our broader membership, but it does mean we hear different perspectives.

From that, we know we need to have more certainty about the future of BNPL regulation. That is fair to both the lenders and the borrowers.

There has been some public debate about the regulation of BNPL. How will BNPL be regulated? Should it be handled differently from other parts of consumer credit?

Suppose we are considering a change of approach to regulating credit for BNPL. If we are thinking of how to control other innovative products. Then, we need to talk about a level regulatory playing field.

Unfortunately, the current credit market does not work for many families in the UK.