4 | Legal Awards 2022 Mar22730 Best FinTech Regulatory Compliance Lawyer – Colin Ngan Consumers deserve up-to-date regulation; Klarna’s UK Head of Compliance, Colin Ngan (awarded, Best FinTech Lawyer 2022), discusses whether a combination of smart regulation and onrushing fintech could change the market for UK retail financial services. One of the great financial casualties of the pandemic may be the credit card. Even before the Covid-19 crisis, growth in credit card lending was lagging other forms of credit over the past decade. Its share of global e-commerce transactions is expected to fall from 22.8 per cent in 2020 to 20.8 per cent in 2024, according to Worldpay. Consumers are changing the way they pay and turning away from what many view as a structurally unfair business model. Credit cards have a role to play in consumer credit, providing funds in emergencies and free credit to those able to pay off their balance each month. Issuers, including banks, make money by charging high monthly interest and late fees to consumers who do not pay their bills in full (or at all). These often poorer consumers are effectively subsidising others, who then also enjoy rewards such as loyalty points. Even worse, credit card companies charge higher interest to more vulnerable and ‘higher-risk’ borrowers, making it harder for them to pay off their bills. The ‘fin’ As we have seen with current accounts, the fintech industry has stepped in to offer fairer, more transparent and better-value credit solutions, including ‘buy now, pay later’ (“BNPL”). These services allow users to spread the cost of their purchases over a short period of time in interest-free instalments and, in Klarna’s case, with no late fees. BNPL makes up just a small percentage of online retail sales – but is growing fast. It more than trebled in size as more people did their shopping online due to lockdowns. BNPL differs from the conventional credit card in several ways. Credit card issuers make the bulk of their revenue from interest payments. In contrast, Klarna charges fees only to retailers for offering these services – and not consumers. YouGov polling suggests 70 per cent of BNPL users did so as an alternative to a credit card. The appeal is broad: around half of users were either between 25 and 34 or over the age of 55, according to an analysis by Capital Economics of that YouGov survey. Klarna’s BNPL offers additional benefits for consumers, including the ability to return items before they have to make payment, sometimes called ‘try now, pay later’. This was particularly valuable during the pandemic, when bricks-andmortar shops were closed. The Woolard Review—published by the Financial Conduct Authority (“FCA”)— highlighted that when BNPL is used appropriately, it provides valuable benefits – citing how users like the simplicity which, if repaid on time, can be cheaper than alternative forms of credit. The ‘tech’ Klarna uses technology to perform real-time credit checks on every single purchase using BNPL, so it is a real-time assessment of the suitability of this payment option. Consumers who miss payments lose access to Klarna. This incremental approach is different from the credit card practice of offering large credit lines with just one upfront check. This helps BNPL users to manage their finances – Klarna also offers budgeting and spending insights tools for consumers. As a result, Klarna has losses of less than one per cent on its BNPL lending. Consumers can shop and pay on one app, instore and online; Klarna goes further, offering an interactive virtual experience with a human touch, by connecting online shoppers with in-store experts for advice and inspiration via messaging and video calling – where static images and chatbots are ineffective. To do all this, Klarna utilises the best engineers to deliver a trusted seamless experience for consumers. The regulation As with any credit product, consumers can still run into financial problems. The sector is growing fast, with many new players offering varying standards of service when it comes to credit checks and charging fees. The Woolard Review noted that more than one in 10 consumers of a major bank using BNPL were behind on payments. Regulation crafted in 1974 has not kept up with innovation. That is why Klarna welcomed the
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