A tale of Big Tech and whizzy financial lenders moving faster than plodding regulators and governments is hardly novel but two news stories this week hammered home the contrast in the “buy now, pay later” (BNPL) market – where the financial products, critically, remain unregulated in most cases.
First, Apple said its new iPhones in the US would offer a BNPL feature on Apple Pay from the autumn, giving users the option to make payments via an interest-free four-month loan. The innovation could be brought to the UK a few months later, providing stiffer competition for the likes of Klarna.
The entry of Apple, one can confidently predict, will further fuel the growth of BNPL. Even as it is, the annual volume of lending is estimated to have more than doubled in 2021 in the UK from the £2.7bn calculated by the Financial Conduct Authority (FCA) for 2020.
Second, Citizens Advice showed how BNPL lending is blending into the regulated credit card market. According to the charity, 42% of recent BNPL shoppers in the UK relied on credit cards or other forms of borrowing to pay what they owed.
Its description of shoppers “piling borrowing on top of borrowing” seems broadly accurate. At the very least, one can see a picture of consumers juggling and shuffling debts, a pattern of behaviour that ought to worry regulators with duties to look out for consumers’ interests.
And, to be fair to the FCA, it is concerned. After a review in February 2021, it said there was “a strong and pressing case to bring BNPL business into regulation”. Nor should there be much debate about the form of regulation.
The general principles only need to roughly mirror those elsewhere for unsecured credit: affordability checks; clear and honest marketing; free debt advice for struggling borrowers; the right to appeal to an ombudsman.
The government also backed regulation in October and the Treasury started consulting. Five months after its consultation closed, however, we still await the findings and a plan of action. Since the FCA cannot run its own consultation until it has the go-ahead from the Treasury, the earliest a nailed-down regulatory framework could appear is probably 2023.
The pace is shockingly slow. The interest-free BNPL product itself clearly has benefits for borrowers who repay on time. The danger lies in the spread from low-ticket clothing purchases towards utility bills, as some providers are reportedly targeting, and the sheer number of contracts that a consumer can accrue. We could soon be looking at a £10bn lending market, at which point BNPL will no longer be a minority sport and will have entered the mainstream.
The Treasury needs to hurry up. It should not take two years or more to move from “strong and pressing case” for regulation to implementation. Protection for consumers should already be in place.
Scoring points in the blame game isn’t much use to Wizz Air
What a difference nine months makes. Last September, the airline industry was feeling vaguely cheerful about life for the first time since the onset of Covid. Bookings started to soar and share prices perked up. Wizz Air, sporting a £5bn stock market valuation, was even emboldened to make a cheeky (and quickly rejected) takeover approach to easyJet.
And now? Well, Wizz’s share price has halved (and easyJet’s is off a third) and the mood of cautious optimism has been replaced by a fog of confusion. Wizz’s full-year report on Wednesday told the story: the backward-looking loss of €642m (£550m) in the 12 months to March wasn’t the main worry; rather it was long list of complaints about how the return of customers is being squandered amid “supply chain issues”, as the founder and chief executive, József Váradi, put it.
His grumbles covered staff shortages in air traffic control, ground handling and border control. Airlines probably aren’t sweet innocents themselves on the hiring front, but airports look to have been spectacularly slow in rehiring the staff they laid off by the thousands during the pandemic. The infrastructure wasn’t in place to support a return to mass flying that had been predicted for months.
Scoring a few points in the blame game isn’t much use to Wizz, however. By this stage of the financial year, it is usually in a position to estimate the outcome. This time it merely predicted more losses in the April-June quarter despite “strong consumer demand for the summer”.
The shares lost 10% and it is easy to see why: versus last autumn’s high hopes, the airlines’ financial revival looks about a year behind schedule.
