Current economic headwinds and the pandemic placed real burdens on the finances of many, but appetites for convenience and consumer goods haven’t waned. This has led to younger consumers wanting to buy now and pay later for goods, an attractive option when it comes to financing purchases at times of economic hardship.

BNPL has emerged as one of the most popular online payment methods, due in part to the ease of use for consumers. Fintech start-ups have capitalised on this ‘boom’ and investors too have found it a lucrative opportunity, so the pace of growth has been relentless. Unfortunately, so far, the unregulated nature of BNPL has not only encouraged companies into the space but also fraudsters as well. 

How new regulations will affect BNPL going forward

The new regulations announced by the UK government last month will better protect millions of consumers through the strengthened regulation of interest free BNPL credit arrangements and that should be welcomed. They will help reduce financial harms to consumers and ensure that BNPL advertisements are fair, clear, and not misleading.

However, the new regulations do not go far enough when it comes to protecting consumers from fraud, as they do not require BNPL providers to implement technologies such as behavioural biometrics that reduce fraud and build digital trust. The European Union has been looking at whether BNPL should fall under the scope of PSD2, and we hope the government here does similar in the future.

Has the BNPL bubble burst?

Investors appear to currently be turning their backs on BNPL businesses and many other tech companies more broadly, as we saw recently with Klarna’s valuation plummeting. We’ve seen what can happen to unregulated lending providers in the past – such as Wonga - and BNPL too may yet succumb to the same fate.

What shouldn’t be forgotten is the opportunity for BNPL providers to give users additional time to pay off their purchases, while at the same time reassuring them that they are doing everything they can to stop fraud. The cost-of-living crisis means consumers will benefit from being able to pay off their purchases over a longer time period.

We also can’t ignore that the fraud risk with BNPL isn’t going to go away. Criminals use stolen identities to create accounts and make purchases and this could be mitigated if secure identity verification processes were mandatory.

The effect of Apple entering the BNPL market

Apple entering the BNPL market demonstrates that one of the world’s largest companies recognises the clear opportunity that exists in the BNPL space. Apple can also deliver BNPL services on a huge scale, with over half a billion Apple Pay users worldwide.

Apple may be entering the BNPL space as they can do so without being a bank, given BNPL is still largely unregulated. Apple may only want to enter the BNPL market outside of Europe where lending activities are unregulated – we should still be wary of the supposed sheen an association with a big tech stalwart like Apple could have on BNPL services, and tread carefully until we see smarter regulation and better identity verification technology to protect people.