BNPL prepares for 2023

Firms operating in the Buy Now, Pay Later (BNPL) space have faced a 2022 with its fair share of ups and downs. From large numbers of new customers trying out BNPL products to some backlash from critics who want more regulation on the industry; the past few years have certainly had mixed fortunes for the sector.

After the UK Government announced in 2021 that the Financial Conduct Authority (FCA) would soon be tasked with regulating BNPL firms, the industry is planning for this major shift. While many details about the exact level of regulation remain unclear, HM Treasury has said that new affordability checks will be required of BNPL players, including Klarna, Clearpay and Laybuy.

The push for BNPL firms to face more regulation is not isolated to the UK, with the United States Consumer Financial Protection Bureau currently debating whether the sector needs to see new rules come into place.

Deliveroo X Klarna partnership

Billed as offering more flexible payment options to Deliveroo customers, the partnership between these two firms led to a backlash from a wide range of critics, including finance expert Martin Lewis, who warned that using the service for essentials such as food could lead to unmanageable debt levels.

A number of BNPL companies have also had to fight off cyber attacks and fraud from a range of areas. Cyber criminals have targeted BNPL services as it can take longer for suspected fraudulent payments to be identified, as payments are delayed. Stolen credit card details can be used for many fraudulent purchases before being discovered, making BNPL companies refocus on ensuring frictionless identity verification is achieved during the onboarding process.

One BNPL company reported a data breach in 2021 after customer data was reportedly left exposed by the company by accident, resulting in a temporary lockdown of their app. Cyber criminals are hacking BNPL firms to obtain sensitive customer information that can be used for illegal activities, further adding pressure on the industry to maintain up-to-date cybersecurity measures.

Postive trends

As we enter 2023, BNPL clearly has some challenges to overcome. The leading names need to make changes in advance of the proposed FCA regulation that is expected to hit the sector in 2024. However, many core metrics related to the BNPL industry remain very positive going forward. Younger consumers are especially interested in accessing BNPL services with more than half of Millennials using a BNPL product or service.

Research from GlobalData forecasts that the sector will grow by over 33% each year until at least 2026, in large part due to the continuing popularity of online shopping and the benefits of BNPL. While some uncertainty exists around the exact nature of future BNPL regulation, the sector benefits from having several strong trends supporting it as 2023 begins.

The conversation continues at FTT Lending 3.0 2023! on the 29th March 2023 at the Convene at 22 Bishopsgate, London.