Blog: Banking & Credit Update: BNPL Sector Faces Tougher Regulation – Forbes

Government Cracks Down On Buy-Now-Pay-Later To Protect Borrowers

Buy Now Pay Later (BNPL) lenders will have to follow tough new rules to protect customers from borrowing beyond their means.

The government today announced that BNPL companies such as Klarna and Sezzle offering short-term credit will need to carry out new checks on borrowers to make sure they can afford the repayments. 

Under the new rules, lenders will need to be approved by the Financial Conduct Authority (FCA), the UK’s financial services regulator. Adverts for BNPL will also need to be fair, clear and not misleading.

For the first time, BNPL customers with complaints will be able to take their concerns to the Financial Ombudsman Service (FOS).

Announcing the proposals, John Glen MP, Economic Secretary to the Treasury, said: “Buy-Now Pay-Later can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place.

“By holding Buy-Now Pay-Later to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”

The government plans to publish a consultation on draft legislation at the end of the year. Secondary legislation should follow in mid 2023 before the FCA consults on its rules for the sector.

Other forms of short-term interest-free credit, such as those used to pay for dental work or larger items like furniture, will also be expected to comply with the new rules. 

The Wall Street Journal reported last week that Swedish BNPL lender Klarna was in discussions with investors that could value the company at $15 billion – down from its 2021 peak of $46 billion.

The BNPL sector has been criticised for making it too easy for consumers to get into debt. Research by debt charity Step Change earlier this year found half (49%) of those with a BNPL loan found it difficult to keep up with household bills and credit repayments. 

It also found 40% had taken ‘negative coping actions’ to keep up with credit repayments in the previous 12 months, such as using credit to repay credit, falling behind on housing payments or utility bills, asking family or friends for help or cutting back to the point of hardship.

Earlier this month, Apple announced its intention to move into the BNPL space with Apple Pay Later, a US-only service that allows iPhone users to spread the cost of a purchase over up to four instalments over six weeks on credit, with no fees or interest.

Regulator Finds ‘Serious Failings’ Among Lenders, Demands More Consumer Support

The Financial Conduct Authority (FCA) is writing to more than 3,500 UK lenders to demand greater support for consumers struggling with the soaring cost of living, after discovering “serious failings” at more than 30 credit providers.

The regulator is concerned some vulnerable customers are not receiving the guidance or advice they need to tackle the challenges of managing their finances against a backdrop of runaway inflation and soaring energy prices.

With household bills expected to continue to rise in the second half of this year and potentially beyond, the FCA told firms it was important to “act now to make sure borrowers struggling with payments and customers in vulnerable circumstances can access the help they need”.

The FCA says it has looked at how borrowers in financial difficulty are treated by lenders. While some companies provide beneficial support, the regulator says most firms need to have “better conversations to fully understand their customers’ individual circumstances”.

The FCA found that some lenders do not discuss the potential benefits of money guidance or free debt advice. At the same time, serious failings were discovered at more than 30 firms, largely operating in the consumer credit sector.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “The financial services industry has a significant role in helping consumers manage their finances, and it should expect us to pay close attention to how they do that over the next few months.”

Sarah Coles at Hargreaves Lansdown said: “Lenders shouldn’t be charging more in fees than it actually costs the business, and the FCA found that some were applying charges inconsistently, and in a way that risked making everything even worse for their customers.

“Banks need to up their game, but if you’re having trouble managing your debts, it shouldn’t put you off getting in touch and talking to them. They should help you find a solution, which will do far less damage to your credit rating than if you just miss payments.”

14 June: Watchdog Proposes Rules To Protect Access To Bank Branches

The regulator for the UK’s financial services sector wants banks and building societies to think more carefully before closing branches and removing cash machines.

Guidance proposed by the Financial Conduct Authority (FCA) will ask companies to undertake more detailed analysis on how factors such as shorter opening hours would affect customers.

The regulator is concerned that some organisations are currently not doing enough to understand the impact of such changes, or to keep customers informed about them. It hopes the proposed changes to its guidelines will better protect customer access to services.

Sheldon Mills ,executive director of consumers and competition, at the FCA, said: “We expect firms to continue to offer easy and accessible banking services to their customers, and this is even more important as the country faces a cost-of-living crisis.

“We saw firms successfully do this and support consumers through the pandemic, and this standard needs to continue with firms really thinking about their customers, especially those in vulnerable circumstances, and ensuring they continue to meet their needs.”

9 June: Barclays axes 14 branches as 2022 closures hit 117

Barclays has announced 14 more branch closures, which will bring total closures in 2022 to 117 by the end of the year. The bank’s branch estate, which stood at 666 at the end of last year, will number 549 at the end of 2022.

Barclays has attributed the closures to the growth in customers banking online. It says 70% of banking can be done digitally, and it has 10 million digital customers compared to none nine years ago. It says only 10% of its customers carry out banking in-branch.

Here are the remaining 54 branches that will close this year. The latest 14 confirmed closures are in bold:

A Barclays spokesperson said: “We continue to review and adjust our branch footprint to ensure it reflects the way that our customers are increasingly choosing to do their banking.

“We will always give 12 weeks’ notice of any branch closures, explaining the rationale for the decision, as well as highlighting alternative branches and ways to bank. This includes working with the local community to find different, more flexible ways for our colleagues to continue to provide local banking support, such as through pop-up presences.”

The news comes amid efforts by the banking industry, government and campaigners to improve access to cash across the UK.

Cash use in the UK has declined in recent years, with hygiene concerns and social distancing restrictions implemented during the pandemic helping to accelerate the trend.

However, many people use cash daily and will be affected by branch closures and the contingent lack of free-to-use ATMs. The government has cited the vulnerable and elderly as among them.

The Access to Cash Action Group aims to help provide cash and banking access for communities where services are limited. It includes all major retail banks, charities Age UK and Toynbee Hall, as well as the Federation of Small Businesses, which represents small businesses and the self-employed.

9 June: Citizens Advice Alarm At ‘Debt Pays Debt’ BNPL Culture

More than 40% of shoppers who use buy now pay later (BNPL) services are borrowing from other sources to make their payments, Citizens Advice has found.

Of these, 26% used a credit card – the most popular option – but others used overdrafts or payday loans.

Citizens Advice – which is campaigning for BNPL to be made a regulated market – says consumers aged 18 to 34 are the most likely to make BNPL payments using debt, with 51% falling into this age range, while 39% were aged 35 to 54, and 24% were over 55.

Millie Harris, a debt adviser at Citizens Advice East Devon, said: “Most of the people I speak to who are using BNPL live off overdrafts and credit cards, so are using these for repayments. It’s just relying on one debt to pay off another.” 

As the UK grapples with the ongoing cost-of-living crisis, accruing extra debt through BNPL services has the potential to squeeze household budgets even further.

Growing demand

BNPL services exploded in popularity during the coronavirus pandemic. Research from the Financial Conduct Authority (FCA) found around five million UK consumers made £2.7 billion worth of purchases through BNPL in 2020 — four times higher than the previous year. 

Citizens Advice has found that as many as one in 10 BNPL customers did not fully understand how repayments would work when they used the service.

Ms Harris said: “It’s just a few clicks at a checkout. Too often that means people don’t realise how serious it is; that it is credit and there are consequences if they do not repay it.”

Market regulation

In response to the growing uptake of BNPL, Citizens Advice is calling for the sector to be brought under FCA regulation.

In late 2021, the UK government launched a consultation on the BNPL market, seeking views on how its regulation should be approached.

Meanwhile, the FCA has successfully persuaded the most popular BNPL companies — Klarna, Laybuy, and Openpay — to make their repayment terms clearer to customers under the Consumer Rights Act.

Credit agencies are also beginning to examine how consumers handle BNPL debt when compiling credit reports. Whether or not consumers make payments on time will be tracked from June 2022, and will appear on credit reports from 2023. 

This reporting means that letting BNPL payments slide could jeopardise more important credit applications down the line, such as mortgages or personal loans.

Tech giant Apple is launching its own BNPL service – Apple Pay Later –  in the US later this year. Apple Pay Later will be integrated with online retailers that accept Apple Pay.

30 May: More Barclays Branches ‘Casualties of Digital’

Barclays has announced the closure of a further 27 branches in addition to the 13 that it announced in March would be shutting down. Having already shut 63 branches since the start of the year, the latest announcement will bring the bank’s total branch closures in 2022 to more than 100.

Barclays cited the rise in banking via digital channels as the reason behind the closures, with its digital customers growing to 10 million over the last nine years. It estimates that over 70% of transactions can now be carried out digitally, and said that fewer than 10% of transactions are currently carried out in branches.

A Barclays spokesperson said: “We continue to review and adjust our branch footprint to ensure it reflects the way that our customers are increasingly choosing to do their banking.

“We will always give 12 weeks’ notice of any branch closures, explaining the rationale for the decision, as well as highlighting alternative branches and ways to bank.” 

Barclays has pledged to work with communities to find alternative ways to provide local banking support. This includes use of the Post Office and adding to its existing 50 ‘pop-up branches’ across the country in locations such as community centres, libraries and business hubs.

26 May: ‘Gen Z’ Leaves Physical Wallets At Home To Pay By Phone

Mobile phone payments are on the rise, with 61% of consumers now saying they are confident leaving their wallet at home and are instead paying with their phone, according to research by card issuer, Marqueta. 

The survey found that Gen Z consumers – those born between 1997 and 2012 – were the most enthusiastic about mobile payments. More than three quarters (77%) of Gen Z respondents said they can happily go about their day relying solely on mobile payment platforms, such as Apple Pay and Google Pay.

Nearly 8 in 10 (77%) of UK consumers said they have used some sort of mobile wallet at least once in the last 12 months. 

Of these, 83% feel they can purchase whatever they need with a digital wallet, and a further 64% actually prefer to pay with their phone because it has more built-in security features such as face or fingerprint identification.

Anna Porra, European strategy director at Marqeta, said: “Confidence in mobile wallets is growing, and people feel increasingly comfortable that their mobile phone can handle their payments and not leave them stranded.”

Contactless becoming norm

Marqeta’s survey of 4,000 consumers across the UK, USA and Australia, also revealed that, when consumers do bring a physical wallet, the majority rely on contactless payments rather than cash or chip & PIN.

Almost all – 96% – of UK consumers said they had made a contactless payment in the last year. Of these, 42% said they have been making contactless payments for so long they have even forgotten their PIN. Among UK respondents under the age of 24, this rises to 54%.

Regardless of their age, the majority of UK respondents – 63% – say needing to enter their PIN while making a payment is irritating.

The majority of consumers found cash equally outdated. 63% of survey respondents expect cash to eventually disappear altogether. Of these consumers, 59% expect the disappearance of cash to happen within the next five to 10 years. 

Ms Porra said: “While the pandemic was the catalyst for the shift to contactless and mobile wallets, it is the convenience, security, and speed of these payment options that have made them sticky.”

Physical banking in decline

Most consumers were found to prefer digital banking as well as digital payments. In the UK, 46% say they can ‘count on their hands’ how many times they have used a physical bank in their lifetime.

About a third (33%) went so far as to say it would have no impact on their lives if all the UK’s physical bank branches closed tomorrow. 

For UK respondents aged 18 to 24, the concept of in-person banking is even less familiar: 50% of this group said the idea of visiting a physical bank branch was ‘completely alien’ to them. 

Despite their lack of enthusiasm for in-person banking, the majority of respondents said they want more personalisation from their banks: 80% of consumers said they want their bank to offer them more personal rewards, while 60% would like their bank to provide tailored budgeting advice.

A significant number of consumers were equally interested in how cryptocurrencies could be incorporated into their day-to-day financial lives. Marquette found that 26% of UK consumers own cryptocurrency, and of those who do 82% are interested in using it in the same way as they would a debit card at point of sale.

10 May: New laws to protect access to cash and help scam victims

The Financial Services and Markets Bill announced in today’s Queen’s Speech will ensure the continued availability of cash withdrawal and deposit facilities across the UK. The stated aim is to make sure the country’s cash infrastructure is “sustainable for the long term”.

In the face of largescale closure of bank branches across the UK (see stories below), the government has acknowledged that cash remains an important payment method “for millions of people across the UK, particularly those in vulnerable groups”.

Further details will be provided on the mechanics of maintaining the cash infrastructure when the Bill is published.

The Bill will also enable the Payment Systems Regulator to force banks to reimburse victims of authorised push payment (APP) scams, which are thought to cost hundreds of millions of pounds each year. This is to ensure victims are not left paying for fraud through no fault of their own.

24 March: Lloyds Follows HSBC With Swingeing Branch Closure Programme

Multi-brand financial institution Lloyds Banking Group is to close 60 branches – 24 Lloyds Bank, 19 Bank of Scotland and 17 Halifax.

It cites a reduction in branch usage for the cull, saying online banking usage is at a record high in 2022. Rival bank HSBC gave the same reasons for its decision, announced last week, to close 69 branches later this year (see story and details below).

Lloyds says it has 18.6 million regular online banking customers and over 15 million mobile app users, with the numbers increasing by 12% and 27% respectively in the last two years.

It says all the branches slated to close continue to have alternative banking and cash access within one mile. 

Vim Maru, a director of Lloyds Banking Group, said: “Just like many other high street businesses, fewer customers are choosing to visit our branches. Our branch network is an important way for us to support our customers, but we need to adapt to the significant growth in customers choosing to do most of their everyday banking online.”

Lloyds Bank Group branch closure details

HSBC Closes 69 Branches

HSBC is to close 69 of its 510 UK branches between July and October this year. The bank says less than half its 14.75 million customers actively use its branch network, with the average footfall declining over 50% since 2017.

It attributes this to the growing popularity of mobile and online banking – a trend exacerbated by the restrictions associated with the coronavirus pandemic.

Jackie Uhi, head of HSBC UK’s branch network, said: “The way people bank is changing – something the pandemic has accelerated.

“We know that the majority of our customers have a preference to do much of their day-to-day banking online or via mobile, so we’re removing locations where we have another branch nearby, and where there is a significant reduction in customers using face-to-face branch servicing.”

HSBC customers are able to carry out day-to-day banking transactions at Post Office branches. The bank says all of the branches that are closing this year have a Post Office within 1.5 miles, 97% of which are within one mile.

For customers concerned about retaining access to cash, 90% of the closing 69 branches have 10 or more free-to-use ATMs within one mile, with all closing branches having at least five.

The bank says it is working with ATM provider LINK and the Cash Action Group on an industry-wide effort to provide banking services in areas where branches are no longer viable.

Following the closures, HSBC UK will have a branch network of 441 branches in the following formats:

  • 96 full service branches offering a full range of services, predominantly based within large cities and towns where branches see a broad range of requests.
  • 172 cash service branches supporting communities that have a greater need for access to cash, alongside over-the-counter servicing and the ability to deal with complex issues such as bereavement and Power of Attorney.
  • 173 digital service branches providing ‘traditional’ cash and cheque transactions and access to other products using self-service technology.

The full list of closures is below:

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s