Klarna, the buy-now-pay-later (BNPL) operator has launched an Influencer Council in an attempt to assist brands with advertising BNPL services. This comes at the same time as a recent Government announcement that BNPL services are to be regulated by the Financial Conduct Authority (FCA), demonstrating the increasingly complex landscape that BNPL services, and the brands who use them, operate in.
BNPL services offer customers flexible payment methods (both online and in store), by allowing customers to pay for items in instalments, spread across a specified period, after delivery of the goods or services. BNPL services can allow customers to manage their finances by spreading the cost of a purchase interest-free. However, campaigners for regulation of BNPL services argue that this increases the risk of individuals falling into debt, especially amongst Gen-Z and Millennials, considering the popularity of BNPL services and the ease at which impulse purchases can be made (particularly during COVID-19, with the volume of transactions tripling in 2020).
The need for change
It has recently been announced, following the Woolard Review into the unsecured credit market, that subject to consultation with stakeholders and the passing of necessary legislation, interest-free BNPL credit agreements will be regulated by the FCA to protect consumers. Whilst no specific date has been provided for the legislation, the Government has said it will bring forward legislation as soon as possible (the Woolard Review had identified an urgent need to regulate all BNPL products). When this occurs, BNPL providers will be subject to FCA rules, and will have to undertake affordability checks before lending to consumers. They will also need to consider the vulnerability of individuals using their services. In the event of a dispute with the BNPL provider, consumers will have the option to complain to the Financial Ombudsman Service. However, until these changes are implemented, BNPL services remain unregulated. Whilst it will depend upon how any changes are implemented it is possible that retailers partnering with BNPL providers may themselves have to be FCA authorised.
The FCA has also recently published guidance relating to protection of potentially vulnerable retail customers, discussed in more detail in our post here.
Compliance with advertising rules
In addition to being aware of BNPL services' status as a regulated product, brands should also be mindful of the rules around advertising BNPL services. The Advertising Standards Authority (ASA) recently issued a decision against a TV advert for Currys PC World (Currys) finding it to have breached rules relating to responsible advertising, by encouraging the use of credit to finance excessive spending during a time where many people were struggling financially. Currys had submitted that it believed consumers were likely to understand that it was promoting its BNPL service, rather than encouraging consumers to make excessive purchases that they could not repay. However, the ASA concluded that, particularly in the context of COVID-19 and the associated financial difficulties for many people, the advert was irresponsible and encouraged excessive spending by way of BNPL services, in breach of the CAP Code.
This advert was aired before the Committee of Advertising Practice's new guidance relating to advertising of BNPL services came into force (please see here for our review of this guidance), and so any current and future adverts of BNPL services should comply with this guidance.
Against this increasingly regulated backdrop, Klarna, one of the most well-known BNPL providers, has launched a new Influencer Council, made up of key panel members within the industry to provide a "best-in-class approach for advertising financial services" in the UK (in particular with influencers and/or on social media). This follows Klarna's findings that only 27% of consumers recognise when an influencer is advertising a product/service and 30% of consumers who see an influencer promoting financial services are likely to act on it. As BNPL services continue to increase in popularity, the launch of Klarna's Influencer Council is well-timed and it is hoped that its guidance will go some way to assisting brands using BNPL services. A recent ASA report revealing 'unacceptable' failures by influencers to abide by advertising rules suggests that this issue will be under the spotlight for some time.