New regulations for Buy Now, Pay Later: comply now, not later

The pace at which technology evolves is extraordinary; there are endless digital advancements and innovative methods of doing everyday tasks. A new idea is seemingly birthed every minute – in 2018 alone, over 34,000 tech businesses were created.

In the last ten years or so, we have experienced new technologies such as WealthTech, FinTech, InsurTech and RegTech, come to fruition. The ambition is to construct a world where the financial industry is at its most efficient, with a wide range of products and services that are easy to use, easy to access and make it easy to comply.

The Secretary of State for Digital, Culture, Media and Sport, Oliver Dowden, has stated that “digital technologies have transformed our economy, our society and our daily lives. They are now a fundamental part of our everyday existence, providing goods and services that even a decade ago seemed unimaginable.”

Buy Now, Pay Later (BNPL) is a product of this technological advancement. It is an innovative solution intended to make consumer payments easier.  Online shopping has aided in the popularity of BNPL services. When consumers choose to check out, they are presented with the option to receive their items and pay at a later date or in instalments. The danger is that – without regulatory oversight and obligations to run Know Your Customer (KYC) checks – customers can easily overspend what they can’t afford, leading to debt for many.

“The challenge for government is to keep pace with the dramatic speed of technological change: unlocking the enormous benefits of digital technologies while minimising the risks they present both now and in the future.”

As such, regulators operate tirelessly to keep up with the pace of technological innovation whilst mitigating risks. As BNPL is fairly new and operates within a loosely regulated industry, it is next on the regulator’s to-do list when it comes to implementing consumer protection laws.

What regulations can BNPL expect in the UK?

There are more than 19 million people in the UK that utilise BNPL services, with progressively more users flocking to use BNPL in the midst of the cost of living crisis.

To sustain its growth, the Government will be making the following regulatory changes that put BNPL in harmony with Section 75 of the Consumer Credit Act (CCA) – a section that protects customers when entering a credit agreement.

• The rules will amend the current credit rules under CCA and be applied to BNPL. Once regulated, BNPL users will have adequate Section 75 protection.

• Lenders must ensure loans are affordable – proper affordability checks will need to be in place to identify vulnerable consumers so that they can’t borrow more than they can afford.

• Consumers will be able to file complaints to the Financial Ombudsman Service.

• BNPL providers need to be approved by the regulator.

• Advertisements must be fair, clear and not misleading – the financial promotions regime will be amended so that all BNPL promotion agreements fall within the regime. Unauthorised merchants will need to obtain approval for BNPL advertisements.

For more information on Section 75 and BNPL regulations, please read our blog.

How BNPL companies can manage these regulations?

There is a new wave of regulations approaching the BNPL industry. To stay afloat in regulatory waters, there are plenty of good practice actions firms could be pursuing, for instance:

Understanding your role and responsibilities

Businesses should be aware of what consumer protection rules apply. As an individual, it is prudent that you are accountable for your own actions when acting on behalf of a company. Regulators are cracking down on individual accountability with some even being fined and imprisoned for their wrongdoings.

Strengthening regulatory weaknesses

Instead of using a plaster to temporarily fix a regulatory gap, ensure that your change management processes are aligned to your business goals – if your firm is expecting increased growth, ensure that your regulatory frameworks match this.  

Implementing Automated Regulatory Intelligence (ARI) products

This can seem overwhelming to firms that are familiar with manual processes. However, it’s the perfect time to embrace ARI and its capabilities. RegTech tracks regulatory websites and provides real-time updates. With CUBE, you can set alerts so you find out about regulatory change as it happens – straight to your inbox.

Is regulatory technology the most effective way in navigating changes?

After the financial crash of 2008, the banking sector was heavily scrutinised and stricter regulations were published. The threat of cyberattacks, data breaches and fraud was not going anywhere.

Before regulatory technology, compliance teams had to action regulatory updates manually through paperwork and spreadsheets – a very ineffective and time-consuming method. RegTech was a product created to aid compliance teams in solving regulatory and compliance challenges.

An automated solution provides firms with regulations that are not only relevant but also identify specific changes to regulations – what the update is and how to implement it. Ensuring that firms never miss a regulation, RegTech delivers regulatory data in real time and alerts users when there are changes.

Here are some of the benefits of Automated Regulatory Intelligence (ARI) for BNPL services:

1. Confidence in your firm’s change management processes

RegTech processes regulatory data using automation to capture, process and make sense of the data. CUBE’s AI has been trained for over 10 years on a robust data set – so it’s highly trained, error-free and vows a greater level of accuracy. Through this, gaps and changes in the regulatory inventory can be quickly identified to prevent breaches.

2. Be prepared for cybercrime

With far more stringent processes, it would be more difficult for fraud to occur. RegTech is great for fraud prevention and risk management by ensuring watertight regulations are in place.  

3. Higher efficiency

It can be impossible to manually track all regulations, especially in real time. By delivering regulations as and when they are published, firms can implement these before deadlines – leaving more time for future planning.

4. Long-term savings

ARI can be less expensive than hiring lawyers and translators, especially in a range of different jurisdictions.

5. Supports innovative growth

BPNL services aiming to expand to different regions can enter new markets more efficiently with regulatory data that can be translated from every single language into English.

6. Effective regulatory reporting

In the instance of a regulatory audit, produce reliable audit trails by showing regulatory processes from beginning to end without scrambling through countless spreadsheets.  

How can CUBE help?

CUBE regulatory products are designed to put your mind at ease and help steer the shifting BNPL regulatory landscape. Please see below for details on CUBE RegAssure and RegPlatform to see how they could help your firm.

CUBE RegAssure

For financial institutions just starting out such as BNPL, RegAssure is perfect to help understand emerging regulatory obligations as the firm grows.

As a fairly new business, it can be overwhelming and difficult to keep up with financial regulations, with RegAssure, firms can gain access to ample resources and expertise to identify regulatory data that is relevant to them.

Our highly intuitive product can combat gaps in regulatory data, ensuring that your business is operating to the best standards. Simple to set up and powered by AI, RegAssure understands your compliance needs, offering you instant access to the regulations that matter to your business.

CUBE RegPlatform

For large global organisations looking to develop a new BNPL offering, RegPlatform can help make sense of which regulations you would need to adhere to in new markets or jurisdictions.

It provides a one-stop shop to manage an inventory of global regulations relevant to your business as well as bridging the gaps in regulatory data. Firms can prepare for the future by tracking and proactively managing future changes to existing regulations.

Instead of being reactive to new BNPL regulatory changes, stay ahead by using RegPlatform to identify emerging risks to your business.

CUBE Comment

BNPL services should put customer protection and security at top of mind as this is the case for many regulators going forward. Using ARI, BNPL companies can know what’s around the corner and, plan ahead for changes in a timely manner.

With so many regulatory demands, it’s hard to keep up without automation. Regulation is an ongoing process that is constantly changing, thus, it is crucial that BNPL firms also constantly consider regulatory frameworks simultaneously with growth.

“Digital technologies are key to our future prosperity, but we must also make sure that they are developed responsibly so we protect society and uphold the rights of our citizens.”

Ditch your spreadsheets and discuss your ARI requirements with CUBE.