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Welcome to The Payment Expert weekly podcast, brought to you by SBC Media. Each week we analyse the news driving the global payments industry forward; the innovation, the infrastructure, and everything that has to happen to make it all possible.
Louis (00:00.994)
Hello and welcome back to the Payment Expert Podcast, your source for the latest news, insights and analysis on the payments industry. I'm Lewis Thompson, news editor at Payment Expert, and with me today, drafted in at the last hour, is our senior business journalist Kieran O'Connor. Kieran, thanks for coming on again today to chat all things by now, pay later, new regulations in the UK which have been out for about three weeks now.
Kieran (00:29.809)
Yeah. Yeah, it's good to be back. I mean, it felt like I wasn't on for ages and now I've been on back to about a week, so I just can't get enough of me.
Louis (00:29.816)
Two, three weeks.
Louis (00:39.0)
No, just can't yeah, it's too good.
Kieran (00:41.267)
Or we'll say.
Louis (00:44.142)
We'll see. Well, with the with the binal polator, obviously it was I think it was around the fifteenth of July, those regulations came in in the UK for the first time. So if you think of some of the bigger players that we all know, you the likes of Klarner, Clearpay, PayPal, they all sort of sit under a regulated regime now under the as part of it under the FCA. as that's come in, I mean how have you seen it as it's come in? Has it been
What you expected or has it been a bit of a a non event so far? I mean, me personally I've not seen or heard too much about it. I know that, you know, it only accounts for payments from that date onwards. So I I guess for many people who have got, you know, paying three credit still active, it it may have been initiated from before that date anyway, still. So maybe yet to see the you know, how that plays out.
Kieran (01:38.225)
Yeah, I think personally for as well, though it's been a bit of a non event. I thought going into my life story, I guess we I joined Payment Expert at the beginning of twenty twenty four and I remember like B N P L regulation was one of the topics that was always coming across the desk and we were covering it a lot sort of in the UK and the US and sort of other markets. and there was never really a point where where where we weren't talking about it. and obviously the UK government were under a lot of pressure to sort of regulate the market.
Louis (01:42.094)
Yeah.
Yeah.
Louis (01:58.562)
Yeah.
Kieran (02:08.774)
Just because of how big BMPL sort of grew, especially through COVID. and there was a lot of noise to try and regulate it, but also to regulate it correctly. Because we saw other markets come in, maybe rush it in a way and just sort of do a one size fits all regulation plan, chuck BNPL in with the other credit sort of services. And BMPL providers have been
quite active in telling regulators that we don't want it like that and it shouldn't be done like that. So maybe it's a case of we think it's an on event because we've covered it so much, so in our little world we think it was such a big deal and it actually wasn't, or maybe it's an on event because the regulators have actually done have actually done a good job and there's no one really fighting back against it.
Louis (02:45.506)
Yeah.
Louis (02:56.291)
Mm-hmm.
Louis (03:00.771)
Yeah.
Yeah, I think you're right on that second point actually, 'cause I know that, you know, the big three I mentioned Klarna, ClearPay, PayPal, etcetera. I think they fall under the the temporary permissions regime. So, you know, not full authorisation as of yet. So but they are compliant with most conduct rules, just not at I guess the FCA's full bar regulation. So i in that sense it is kind of a non event by design from the FCA. which I think is probably, you know, what they
what they were going for. I mean, if you think one in five adults in the UK, I mean, have used Bina Pellator from last year, that's, you know, around eleven million people, I think around 13 billion spent. So to have such a massive shift without, you know, having a, I suppose a a settling in period a a time before th th those regulations come to effect would have had a a a big impact. I mean as as you see it now is it
Kieran (03:42.289)
Yeah.
Louis (04:00.457)
Is it should it have happened years ago? I know obviously Bina Polite has gotten gotten very big. It's been around for maybe longer than we expected that it has been. Time does does fly. But or or do you think they've got the timing right just as the market's gotten gotten to where it is and the size it is today?
Kieran (04:17.49)
Yeah, I think BNPL definitely could have been regulated earlier. I mean, it grew it grew so fast. I mean, so many people were using it. I I d I don't know if you if you you if you've used it, Lewis, but I know I have quite a lot, in the past couple of years. So it definitely could have been regulated earlier. But I think the fact they've left it now, I don't know if if this is the reason, but it it sort of looks this way. That because the FCA have allowed the market to maybe mature,
Louis (04:21.474)
Yeah.
Louis (04:28.119)
Yeah.
Kieran (04:47.526)
they've also allowed the allowed them enough time to sort of understand the market and not rush into it. So there isn't really much guesswork in
How are they regulating even j even just how it benefits consumers, how it benefits businesses, they're not really doing any guesswork. So there is definitely an argument that it could have come in earlier, but it's definitely not rushed, which I mean we've seen o other markets come in and they really seem to have just been in such a panic to make sure that consumers are protected that they've just sort of brushed over what BMPL is.
And even just brushed over how it actually works.
Louis (05:32.076)
Yeah, I remember back in a bit before you joined, back in twenty twenty one and years ago, shows my age a bit, but th there was the Willard review, which I think recommended by Nal Pellator back then, back in twenty twenty one, sort of in that COVID era, that was when they recommended regulations to come in. but I I I think maybe if you look at the FCA they perhaps you know, if they regulated it then it might have risked
Kieran (05:46.108)
God. Yeah.
Louis (05:59.508)
locking in the rules onto a product that's probably was still taking some kind of shape and they didn't really know, you know, how it how it would fit. I mean it has matured massively in that time over the over the last five years. so I I suppose it's a yeah, it's a give and take, isn't it? On on the one hand, maybe it could have been regulated earlier to to mitigate some damage in that growth period, but you know, knowing what the how the product is a as well at the same time.
Yeah, it it's yeah, it's it's always a fine line as to when to bring in regulations, I guess. but looking at the changes in as as they've come in, I suppose the main one is affordability checks on any new kind of single transaction. So every purchase that you make using it, you'll it'll go through a a single transaction point. do you think that makes sense for every transaction? I mean, if you've literally I mean you said you've used it quite a bit.
Kieran, if you go and buy some, I don't know, a pair of trainers or sneakers for our American listeners and viewers, if for I don't know, £80, £90, is that something you'd want to have a check on it, any kind of purchase like that, even if it's even if it's less than that? do you think it maybe treats it like a like a mortgage application for the smallest of things? Do you think there needs to be more of a a a line there?
Kieran (07:24.164)
Yeah, I mean, personally, I do think it's a bit heavy handed, especially when you're sort of reading about it. I mean, if I was gonna spend fifty quid on anything, I wouldn't expect sort of a credit check to make sure that I can afford it. However, playing the devil's advocate on this again, I think the FCA are probably trying to prevent maybe a r like a repeat because a lot of people maybe using B NPL not just for the big purchases, but they may be
Louis (07:30.476)
Yeah.
Kieran (07:53.871)
using it for every purchase they ever make, which the majority might come under £30, £50. So if they're using it for every purchase, really every single one needs to be checked. So I do understand it. But this does sort of put all the pressure on on the likes of Klarna, who then have to make sure that that these small affordability checks for the likes of a a pair of trainers doesn't really affect your experience.
Louis (08:00.662)
Yeah.
Kieran (08:23.946)
and I don't know if if it has for me yet. And I've not really heard about anyone in my close family of circle or in my close family circle to say, God, the BMPL stuff has really changed and it's a an absolute nightmare to work now. So I think for now it is working, but as we say, a lot of the existing payments people had won't be under these regulations yet. So we may see some issues in the coming months or weeks.
Louis (08:32.001)
Yeah.
Louis (08:37.399)
Yeah.
Yeah.
Louis (08:51.435)
Yeah. I mean I th I think to be fair, maybe it's to the FCA, it it is a proportionate check. I it's not you know, like a full underwrite. so, you know, it's not treated as a a as a as a full on loan, but I suppose when those orders stack up, so them you know, as you mentioned, people will have I don't know, a thirty pound payment there, a forty pound payment there, fifty, sixty w whatever it is, as those stack up across different providers with no share views, that's I I guess what
her transaction checks may still miss across the across the that that spectrum. which is perhaps why it's important to have those checks t t to note that. with those. let's look a bit about I suppose the the rules of of the agreement. we mentioned obviously they, you know, they only apply from the fifteenth of July onwards.
Everything before that at the minute is still unregulated, so we're s yeah, we're still in that window, aren't If you know, we had clan of paying three, pay in four. everything still is un unregulated there. So I guess at the minute y you could argue that y we still gotta wait a while for the actual new protections to to really come in.
Kieran (09:53.201)
Yeah.
Kieran (10:08.24)
Yeah, I think you'll sort of see the real benefits coming over the next few months. which sort of made me think, I know we both said it's been a non event, at the moment. Maybe over the next few months we might see some issues trickle in and it might become a big story that we'll be covering on Payment Expert. so I guess who knows. But yeah, the the benefits will come in over the next few months. so yeah, who knows? Maybe some issues
Louis (10:21.002)
Yeah.
Kieran (10:38.204)
will arise but apart from that, we'll have to wait and see, I guess.
Louis (10:41.438)
Yeah. I yeah. I mean let's look at let's take Klarna for example. I mean, as one of the biggest binary palaio providers in the UK. I mean, obviously it the rules will target them alongside clear play and the likes the most. but if we look at Klarna's activity, which I find maybe interesting, maybe coincidental, is y you could almost argue that they're almost moving away from the binal.
Palator space in a in a way. I mean, they've applied for a US banking licence back in back in July. d do you think that's a coincidence or do you think they're kind of growing out a bit as perhaps the regulation on bineapple later particularly comes down? Obviously, I know in the US the regulations around pineapple later aren't as strict as over here, but do you think that I guess expansion is you you feel they feel it was necessary at this time when
regulations are are tightening, whether or not they are in the same market.
Kieran (11:43.815)
Yeah, look, I mean Klarna sort of moving away from BMPL and we all look at Klaner when it comes to B NPL as whatever they're doing is sort of how the market is going. them sort of repositioning, maybe looking for a banking licence in the US. I mean they put the application in on the sixth of July, it shows that it shows that they are trying to reposition themselves. Which I think is a logical move given that when regulations come in like like like the ones in the UK
Louis (11:54.378)
Yeah.
Kieran (12:13.464)
And how other markets will probably start to move soon as well, if they've not already. the sort of margins from the BMPL service will shrink. and then you add the ad you add the affordability checks, sort of the data requirements that that they'll need, and all of a sudden they're spending a lot more money as well. on the back of that, I think we've also seen well, I know I have personally, I've seen
banks like the challenger banks like I think Monzo now offer a a sort of BMPL scheme linked to their card in in their mobile mobile banking app. So they've so they've also got competition from banks and I think to really make sure that they are making as much money as they once were they have got to sort of pivot and maybe offer BMPL in a sort of wider array of services.
Louis (12:51.561)
Yeah.
Kieran (13:09.596)
Just to sort of soak up some of them costs that they might see now the regulation is coming in.
Louis (13:14.484)
Yeah, I yeah, if you think affordability checks in themselves, in essence, they're going to cause a lot more expense. so in that sense y you're probably right in that becoming a a bank as it were would be a bit would be the logical choice to do. I mean, do you think it it points to the fact, I mean, I know you mentioned Monzo offering it too, which is which is interesting as well. but do you think from like the pure binal palator perspective, is like Klarner's move
telling us that having just a standalone Bionata product on its own now doesn't really maybe work as a business anymore. And obviously th they're big enough to go and expand and get their banking license. But if you think of maybe smaller providers who haven't got to the same size as a Klarna or a ClearPay, do you think maybe it's gonna be really difficult for them, particularly in the UK where there are these affordability checks, it's gonna be really hard for, I guess, smaller providers to
take their share of the market.
Kieran (14:16.304)
Yeah, I I mean BNPL for a long time was sort of like the Wild West, wasn't it? Everyone could sort of have a go. It was completely unregulated. Everyone could have a go, chuck the hat in the ring, try it for a bit. And a lot of them made a lot of money. and now the regulations are sort of coming in. Like we said, the likes of Klaner will be able to survive it. But the fact that they are sort of repositioning and looking for maybe to offer other services
Louis (14:21.065)
Yeah, what yeah.
Kieran (14:43.61)
or to soak up some s some of them cost by bringing in revenues in a different way does suggest that the smaller providers may end up leaving markets like the UK or may end up repositioning themselves or pivoting or you might see maybe the likes of Klarna maybe acquiring some of these smaller issuers. so yeah, I think there is a lot to come
Louis (14:56.787)
Mm.
Kieran (15:11.332)
in sort of how these regulations and how these costs are sort of impact the wider sector, but you'll definitely see providers putting in them banking licenses and moving into sort of other areas because let's be honest, it it's gone from sort of a start up phase, the B NPL sort of sector, and it's now turned into a mature market where you can't really compete against some of these bigger players.
Louis (15:41.354)
Yeah, I mean th that's very true. And you sp particular I I guess with with the regulations in the UK, the market will probably consolidate quite a bit there. But it's interesting to know, you know, if you look at the difference, I guess the UK has become I guess the harsh standard for regulations now on on Binappolate, whereas if you look at the US, I suppose they've always been, well, under the administration as it stands, a lot more market
friendly. I mean they've scrapped their their federal buy buy now pay later rule and they've seem to have gone the other way entirely. do you think it's pushing maybe the innovation that way a bit? And you know that we mentioned those smaller players that maybe don't have a a space in the UK market at the minute. Do you think it pushes them
over to somewhere like America, where they're you know, they can innovate a bit more, there's a lighter touch regulation and they can yeah, test out new new products, new ideas, new financial incentives for for consumers.
Kieran (16:49.956)
Yeah I mean I wouldn't be surprised if smaller providers make the switch and cross the Atlantic. but I also wouldn't be s I wouldn't be surprised if it's a bit like boarding the Titanic and there's a big ice cube that ends up dr s sinking the ship. Pretty much because the US, although we sort of see it as this sort of land of opportunity, and I know this is the case also in crypto and they're taking a much more
Louis (16:58.516)
Yeah.
Kieran (17:19.034)
sort of lie to approach there. When it comes to B NPL, I wouldn't say it's the perfect place to sort of operate. they've had a lot of troubles in the past. I know before Trump came in, the Biden administration really tried to r regulate the space and they sort of opted for the one size fits all approach. They tried to regulate it and just chuck it in with the sort of credit cards and all that. And I think it was Klarner at the time who compared the regulations and said,
It's like comparing apples to oranges. so i in other words, they were a fan of it. and then that's when Trump come in and sort of said, Well, it's not really a pri a priority for us. We're gonna scrap this and we're gonna let the states pick how they wanna r sort of regulate the space. And so far we've seen a real patchwork in the s in in in how different states are regulating it. some have done the thing that providers won't like and just chucked them in
Louis (17:51.989)
Yeah.
Louis (18:10.835)
Mm.
Kieran (18:18.384)
with the likes of the credit cards, which which which will put prov which I think puts providers off more operating there than it does operating in the likes of UK, which have really tailored their regulations and their approach. However, there is still a lot of states to sort of decide how they want to regulate the sector. And if some of them see an opportunity in maybe taking a lighter touch but also a maybe more of a tailored touch, they could definitely attract some of these smaller providers and
Louis (18:24.798)
Yeah.
Kieran (18:47.92)
Yeah, really improve their economies.
Louis (18:48.575)
Yeah. And also I think if you're like a Klana, which I think operate in around I think it's around twenty six countries, but knowing that the UK is probably now the strictest you know, regime, they know that that's the kind of the or the highest or lowest bar, however you wanna look at it. That's the kind of the bar and anything else can be more lax so in all the other markets they can lax it to to fit that, but at least they know that what the hard
hardest bar is it maybe in the world and as and when or if anyone ever introduces anything stricter than that, perhaps not at the minute, because that, you know, that seems to be a f a a fair way of of regulating it and the FCA have taken that kind of st strict view. So maybe it provides for them some kind of clarity. I know the likes of the Klana have s kind of called for regulation before, so maybe some clarity in terms of what the bar is and then moving it down in in in different markets. And of course moving into
other areas too, like in like with the US banking licence. which kind of leads me on to I I guess the final point, Kieran, for you today, which is do you kind of see it in in the UK? Like do do you particularly, do you think buying up a later will still be a kind of standalone thing, or do you think it'll all be tied to some kind of other financial products? You know, not just buying up a later, you look at Klein obviously still in the US, but going into
going into banking, others too, ClearPay, do you think they'll still be independent Bienal Pelleta providers or will you know, will it all kind of shift into lending and banking within that time?
Kieran (20:31.428)
Yeah, I'm gonna be pretty strong in so that I don't think there will be any standalone providers left in the next few years. And I think I just think the likes of your Monzo's coming in and offering pretty much the same product that Klarner offers. If your funds are already in that app and you already have a bit more trust with them, what's the point in sort of using a different service unless there's way better incentives that
Louis (20:33.044)
Crystal ball.
Ooh. Okay.
Louis (20:47.892)
Yeah.
Kieran (21:00.838)
That they can come out with. I think people are gonna be much more likely to sort of use the firms they're already used to. I think we'll see BMPL still exist though. I think it might be used more as maybe a customer acquisition tool, compared to its own service. but yeah, I sort of see banks taking over and just being like, thanks for innovating this really interesting product that everyone loves, but we'll
Louis (21:03.081)
Yeah.
Louis (21:20.254)
Yeah, see what you're saying.
Louis (21:27.53)
Yeah. Now that it's regulated, yeah. Yeah. I I guess you're right. It's maybe been something that hasn't been regulated, so therefore maybe the banks wouldn't touch it. But now now there is a yeah, a service for it. Perhaps we'll see some movement there and maybe that's where some of the acquisition comes from from the the little ones.
Kieran (21:30.652)
But we'll take it from here. Yeah.
Louis (21:48.872)
In the banking space. Interesting to see, Kieran, and I'm sure we'll be, you know, we'll keep abreast of it as as the stories develop around it too. thank you everyone for listening on this week. Unfortunately, that is all we do have time for today. So thank you very much for to Kieran for jumping on and joining me today. as always, if you're not already subscribed to the Payment Expert Podcast, please make sure to subscribe wherever you get your podcasts.
With plenty more insight and analysis coming over the weeks and months ahead. And as always, for the latest news as it happens, head over to paymentexpert.com. We'll see you all next time.