The story of big tech and witty financial lenders moving faster than tough regulators and governments is hardly new, but two news stories this week revealed the contrast of the buy-now-pay-later (BNPL) market – where financial products, critically, remain unregulated in most cases.
First, Apple said its new iPhones in the U.S. will offer Apple Pay’s BNPL feature from the fall, giving consumers the ability to make interest-free four-month payments. The innovation could be introduced in the UK a few months later, providing fiercer competition for Klarna’s likes.
Apple’s entry, we can confidently predict, will further fuel the growth of BNPL. However, annual lending is expected to more than double in 2021 in the UK by £ 2.7 billion, estimated by the Financial Conduct Authority (FCA) for 2020.
Second, Citizens Advice showed how the BNPL loan blends in with the regulated credit card market. According to the charity, 42% of recent BNPL buyers in the UK relied on credit cards or other forms of credit to pay their dues.
His description of buyers “accumulation of loans on the loan” seems generally accurate. At the very least, one can see a picture of consumers juggling and shifting debts, a pattern of behavior that should worry regulators with obligations to look after consumers’ interests.
And to be fair to the FCA, it’s a concern. After a review in February 2021, he said he had “strong and urgent arguments for regulating the BNPL business.” There should not be much debate about the form of regulation.
The general principles should only roughly reflect those elsewhere for unsecured credit: accessibility checks; clear and honest marketing; free debt advice for troubled borrowers; right to appeal to the ombudsman.
The government also backed regulation in October, and the finance ministry began consultations. However, five months after the end of the consultation, we are still awaiting the findings and the action plan. As the FCA cannot conduct its own consultation until it receives the green light from the Ministry of Finance, the earliest regulatory framework that may emerge is probably 2023.
The pace is shockingly slow. The interest-free BNPL product itself obviously has benefits for borrowers who pay on time. The danger lies in the spread of cheap clothing purchases to utility bills, which some suppliers are reportedly targeting, and the sheer number of contracts the consumer can enter into. We may soon be looking at a £ 10 billion loan market, at which point the BNPL will no longer be a minority sport and will enter the mass market.
The treasury must hurry. It should not take two years or more to move from “strong and urgent” regulation to implementation. Consumer protection must already be in place.
Scoring points in the accusation game is not very useful for Wizz Air
Wizz Air’s woes underscore the reversal of airlines. Photo: Andrew Boyers / Reuters
What a difference the nine months make. Last September, the airline felt vaguely happy about life for the first time since the beginning of Covid. Provisions began to rise and stock prices rose. Wizz Air, offering a market valuation of £ 5 billion, was even encouraged to take a bold (and quickly rejected) approach to easyJet takeovers.
And now? Well, Wizz’s share price has halved (and easyJet’s by a third) and a mood of cautious optimism has been replaced by a fog of confusion. Wizz’s year-round report on Wednesday tells the story: a retrospective loss of 642 million euros (£ 550 million) in the 12 months to March was not the main concern; rather, it was a long list of complaints about how customer returns are being wasted amid “supply chain problems,” as founder and CEO Jozef Varadi put it.
His complaints include a shortage of staff in air traffic control, ground handling and border control. Probably the airlines themselves are not sweet innocents on the hiring front, but airports seem to have been spectacularly slow in re-hiring staff who fired thousands during the pandemic. The infrastructure was not built to support the return to mass flights that had been planned for months.
However, scoring a few points in the indictment game is not very helpful for Wizz. By this stage of the financial year he is usually able to evaluate the result. This time, he only forecasts more losses in the April-June quarter, despite “strong consumer demand for the summer.”
Shares lost 10% and it’s easy to see why: compared to last night’s high hopes, the airline’s financial recovery seems about a year behind schedule.
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