Why regulation of buy now, pay later should be welcomed by consumers and companies - Ismail Mulla

There’s been a lot of talk about the need to row back on environmental regulation to deal with issues such as rising fuel costs but last week’s soaring temperatures are a timely reminder that climate change isn’t an optional extra.

Another thing that has been getting hotter in recent years is fintech.

Even I, a luddite when it comes to finance, have embraced the world of contactless payments, online bank transfers and paperless statements.

Yet as fintech grows and new disruptive technologies enter the market the need for regulation gets stronger.

The libertarain ideology of wanting no government interference whatsoever in online transactions that drove up cryptocurrencies is a strong case in point. A lot of vulnerable people will have lost out during what is being described as the ‘crypto winter’.

Earlier this year, I met American banking giant Bob Diamond, who is chairman of the parent company of payments technology business Circle.

He said: “Much of the industry in digital embraces good regulation. It should not be unregulated. It should be regulated. It should be positively regulated.”

Regulation is certainly on the horizon for the ‘buy now pay later’ business model in this country following the Woolard Review.

Christopher Woolard, chairman of the Review, said: “New ways of borrowing and the impact of the pandemic are changing the market, with billions of pounds now in unregulated transactions and millions of consumers at greater risk of financial difficulty.”

Buy now, pay later allows people to make purchases without having to make an initial payment. The customer can then either choose to pay off the balance in full or in interest free instalments.

The popularity of Klarna has put the whole business model in the spotlight with fears that young people in particular could spiral into debt as a result of access to what is essentially easy credit.

It was interesting talking to James Jackson, founder of an automotive fintech company called Bumper, last week.

Bumper utilises the buy now pay later model to enable drivers to pay for repairs later on down the road.

Currently its product isn’t regulated by the FCA but Mr Jackson believes regulation will be a good thing for the wider industry.

He said: “It’s something that we really welcome. We’re very unique in the buy now pay later sector.

“We’ve always credit checked our customers, we’ve always done affordability checks and we’ve always shared the information with credit reference agencies.

“Pretty much everything that was recommended in the Woolard Review, we’ve been doing since 2015.

“It levels up the playing field because there was big cost associated with all of these additional checks we did and our competitors weren’t doing it. For us it’s really welcome news.”

Bumper is relocating its headquarters to Sheffield from London so it’s good to hear that it has been taking a responsible approach and sees benefit from regulation.

Given the economic situation, it’s more important than ever to bring in regulation governing buy now, pay later transactions.

The last thing we need is for vulnerable people, who don’t have the financial education and experience to be able to stay on top of payments.

It may not be palatable for certain businesses but those that believe in doing business the right way will be fine in whatever the regulatory landscape will look like for buy now pay later firms.

And for those who may have to make changes, just like a root canal, sometimes the pain is necessary to remedy the underlying issues.