Damian Kassabgi is the Executive Vice President for Public Policy at Clearpay.
If you have opened a newspaper over the last 18 months, you will have very likely read about the rise of “buy now, pay later” (BNPL) in the UK. Much has been said about the industry, which accelerated rapidly during the pandemic as e-commerce boomed during lockdown. Not all of it is accurate.
Conservative MPs have taken notice of the rise in the sector – many in support of the benefits it brings to the economy and our Fintech sector – while some have raised legitimate concerns about what it could mean for consumers – particularly for young people during the pandemic. Yet Clearpay came into being to modernise the personal finance industry and to support customers by solving the issue of problem debt, not facilitating it.
Clearpay was founded on a very simple concept. In 2013, our founders, Nick Molnar and Anthony Eisen, observed that millennials were wary of using credit cards after the global financial crisis and instead wanted a different way to pay without incurring interest. They therefore set up a payments platform that allows consumers to pay for items in four parts, in two-week intervals, with a fee taken from the merchant – not the consumer.
Clearpay will never charge interest, ever. If a consumer misses a payment, we charge a small late fee to encourage positive payment behaviour, but this is not designed to cover any losses. If a consumer is unable to pay, we never enforce the debt, or sell it on to debt collectors, nor do we impact their credit history. They simply cannot use the platform again until they have cleared their debt. Therefore, they cannot build up or revolve in debt with Clearpay. Thankfully we are talking about a very small minority here; 94 per cent of our customers pay on time.
The mission is to empower people and help them to take control of their finances by offering a product that enables responsible spending and is debt averse, flexible and easy to understand.
Compare this business model to credit cards. The credit card industry needs consumers to revolve in debt, encouraging minimum repayments and charging high interest rates. Sometimes people have to make a purchase that their monthly pay cheque can’t stretch to. In this instance, what would be a better option? A credit card that risks high interest repayments and revolving in debt, or paying it off in four quick and clear instalments at zero per cent interest?
The growth of BNPL has understandably led to calls for regulation. Clearpay agrees that “buy now, pay later” should fall within the remit of the Financial Conduct Authority in line with the recommendations of the Woolard Review. We were encouraged to see that many of the consumer protections we already have in place were recommended as best practice in the review and we remain committed to being an industry leader.
The next step is for the Treasury to publish its consultation which is expected imminently. We look forward to reviewing its content and will cooperate fully with the Government, Opposition, and the regulator to develop a fit for purpose regulatory framework that is in the best interests of the consumer. We hope that by working together, we can create a right touch regulation, not light touch regulation.
One such danger in the forthcoming consultation is falling into the misguided trap of thinking that introducing credit checks will solve the problem of young people abusing BNPL. This demonstrates a lack of understanding of how BNPL works. Credit scores have never been a reliable source for Clearpay, both because consumers are dealing with a budgeting platform, not a traditional credit provider, and the fact that so many young consumers have not built up a credit score at all. With an average transaction value of £65 on our platform, impacting a customer’s credit score for the price of a pair of jeans is disproportionate given the potential impact on their ability to access a loan for a house or car in the future. The traditional credit information market is designed for businesses, not consumers, and we endorse an approach to affordability checking that provides a more holistic and real-time view of a customer’s financial health, such as Open Banking.
Central to developing this right touch framework is ensuring that the user and merchant experience does not become bogged down by bureaucracy. Payment platforms like Clearpay play a key role in unlocking consumer demand in the economy, supporting businesses large and small right across the UK. The rapid growth in consumer adoption of BNPL demonstrates that we understand how consumers, especially young people, prefer to shop and pay in the modern world – and this is the future. Ensuring that we do not stifle innovation, while legislating for robust consumer protections, is the crux of what policymakers should be looking to achieve.