By Philip Belamant, Founder and CEO of Zilch, the first UK FCA regulated BNPL 

There has been an explosion in the popularity of BNPL (Buy Now Pay Later) providers over the last few years, and this is no surprise as they offer a convenient way for people to stay in control of their finances. In the past, many consumers have been unable to access credit due to their thin-file or complete lack of credit history. BNPLs have brought new innovation to the industry, challenging the traditional lenders, by offering alternative access to credit through soft credit checks as well as, in our case, Open Banking technology.

This simplified way of managing finances is especially attractive to younger generations such as millennials and GenZ who have a natural aversion to traditional credit, wary of long and complex T&Cs documents, and are savvier than generations before them when it comes to finances. These generations never settle for less than the best deal and, as the first digital natives, are adept at using the online sphere to compare lenders and deals in a way that no other generations have before.

In today’s changing credit landscape, customers want to know they can trust their financial provider to be absolutely clear on how much they are spending and saving and not be blindsided into falling into debt. Calls for transparent and personalised lending fuelled by GenZ, will see BNPL providers forced to put consumers, not retailers financial wellness at their core – as it should be.

BNPL Growing Pains

Recently, the BNPL sector has experienced concern with over 70 MP’s calling for regulation and tighter restrictions on providers as fears emerged around the lack of protection in the space. BNPL options, whilst more inclusive and accessible, are still a form of credit and it is critical that providers transparently communicate this to their users – especially as more and more consumers turn to these platforms to help stay in control of their finances.

The industry is growing at an accelerated pace with almost 10 million Brits saying they refuse to buy from retailers that don’t offer BNPL services. Naturally like any rapidly growing industry, the sector has experienced growing pains that need to be addressed and regulation is part of this process.

Regulation is imperative to ensure people who use these services receive the same protection as they would expect with other loans and are not being offered amounts that they will not be able to afford to pay back. As the industry explodes and these agreements become more popular, it is essential that the customer is not only protected but that guidance is given so they can make informed decisions and remain fully in control of their finances.

A regulatory overhaul was inevitable and urgently needed to ensure there is a healthy and fair credit marketplace that works for everyone. For this reason,  I was glad that in early February 2021, the FCA introduced regulations for providers with the subsequent Woolard Review published to set out the ways that regulation can better support a healthy market for unsecured lending, as well as recommendations of processes that providers can take.

Regulation is Key

It is my belief that regulation can be nothing but a good thing for the BNPL space. It ensures customers are treated fairly and only ever offered agreements they can afford. By ensuring thorough affordability checks must be conducted before lending and spending can begin, and consumers are protected throughout the purchasing journey. At Zilch, we were born with regulation in mind and worked with the FCA through its innovative Sandbox programme for 12 months to become the only fully FCA regulated BNPL provider in the UK. We had responsibility in our DNA from the start and take affordability very seriously utilising innovative Open Banking technology to build a personalised affordability profile on each of our users, never lending what they can’t afford to pay back.  At Zilch the view is: if someone misses a payment, it’s a failure on behalf of the BNPL provider – not the customer.

Building blocks for the best customer-first approach

Regulation is no doubt an important step in ensuring the customer is put first, but the exact form these regulations will take is still under discussion and won’t be clear for a while. However, there are certain aspects of the BNPL industry that should be addressed now to ensure a customer centric service. Firstly, consumers are often faced with a multitude of providers to choose from when it comes to check out, which fuels confusion over repayment timelines and can lead to debt that could otherwise have been avoided. A way to combat this is by having a merchant agnostic approach, meaning customers can shop where they like, when they like, all on one platform – instead of juggling multiple payment timelines, a universal platform keeps customers fully in control.

Open Banking technology is another groundbreaking tool that enables a real-time view and a clear understanding of consumers spending habits and affordability. This, in turn, means never lending a customer more than they can afford. This service is a crucial element of financial services globally but uptake has been slow when it comes to BNPLs adopting the technology. In fact, Zilch is currently the only UK provider to embrace this technology, along with soft credit checks which means we have a complete understanding of the consumer’s affordability profile and can make accurate recommendations of what they can afford to borrow. This successfully reduces exaggerated lending and spending, meaning customers stay fully in control of their own finances.

I hope to see this adopted by more players to ensure there is a holistic view of money lent to consumers and services are being provided in the most responsible way.

Putting knowledge into action

Regulation is the first – and arguably vital – step in the right direction to helping BNPL providers overcome growing pains and offer a fully secure and transparent form of credit. Changes will not happen overnight but ensuring customers are always put first and only offered agreements they can afford will ensure providers operate in a responsible way. I have no doubt players across the BNPL industry are continually looking for better ways to protect their consumers, as we do at Zilch, and I would be surprised if regulation that protects customers and encourages successful repayment each and every time was not very much welcomed by all.