Is BNPL Ready for the Regulatory Wave?

What role can Aryza play in helping BNPL providers meet the upcoming regulatory requirements?

Kevin Falkingham Regulatory frameworks are central to our work, especially in lending, where most of our customers are regulated entities. We align our automated solutions and decision engines closely with Consumer Duty principles, focusing on elements like breathing space, support for vulnerable customers, treating customers fairly, and effective complaint handling, while actively managing risk. Aryza Lend is a versatile loan servicing platform designed to monitor changes among vulnerable customers and provide tailored support, recognizing that each customer’s situation is unique. This is especially relevant for BNPL customers, who often rely on short-term credit for essential items, reflecting needs that we address responsibly.

How does BNPL fit into the broader landscape of retail finance, and what are some of the regulatory differences compared to traditional credit products?

Kevin Falkingham In UK retail finance, many providers offer revolving credit as their primary product, often with additional BNPL options for larger purchases. Credit cards work similarly, charging interest on regular purchases but offering BNPL terms for high-value items like a £1,000 sofa. Under BNPL terms, that balance is treated separately from the regular card balance, with different conditions. While BNPL as a sub-agreement in revolving credit is already regulated, new regulations will focus on lenders solely in the BNPL space, like Klarna, Clearpay or Amazon. Despite its appeal, BNPL has drawbacks: detailed affordability checks are often missing, and customers lack protections under the Consumer Credit Act if they face financial difficulties.

Could you walk us through how your software supports lenders from the initial application to the creditworthiness assessment?

Kevin Falkingham From the moment a customer applies, our software supports lenders by automating the initial credit assessment to gauge creditworthiness. The system can quickly decide whether to approve, decline, or refer a loan based on the customer’s financial behaviour and credit history. Additionally, we can integrate with e-commerce platforms to streamline the application process, allowing customers to apply for lending products directly. Aryza’s decision engine can set criteria and rules for credit scores, helping lenders identify eligible applicants in real time. If a customer’s debt level makes a loan inappropriate, our system can direct them to free debt advice early on.

How does the software assist lenders in ongoing risk management and regulatory compliance?

Kevin Falkingham It enables lenders to monitor borrower behaviour continuously, flagging accounts at risk of default to support proactive risk management. We support Consumer Duty by providing features like breathing space and forbearance, as well as automatic reminders for timely payments. On the compliance side, we produce statutory documents, handle regulatory reporting, and ensure alignment with financial regulations and consumer protection laws. Additionally, we offer advanced analytics and reporting tools, providing lenders with insights into market trends and performance to refine their strategies.

How has BNPL data from credit reference agencies improved lenders’ affordability assessments?

Kevin Falkingham Credit reference agencies have been enhancing their data sets, which is incredibly valuable for assessing affordability and creditworthiness. So, if someone takes out a BNPL agreement and shortly after applies for a personal loan or other credit, lenders are now aware of that BNPL as part of the individual’s monthly expenses. This insight helps lenders make more informed affordability assessments.

How does analysing affordability risk help in managing customer debt and protecting credit scores?

Kevin Falkingham When examining data insights, lenders have the option to include credit bureau data and use open banking data to get a clearer picture of whether a customer might be overspending, which can lead to debt accumulation over time. This proactive approach can help manage affordability risks, as missed or late payments may eventually affect the customer’s credit score. The FCA now assesses lenders, especially since the Consumer Duty was introduced, based on customer outcomes. Poor outcomes for customers reflect badly on lenders, and if a lender has a significant number of customers experiencing these issues, the regulator will look to take enforcement action.

How is Aryza preparing for upcoming BNPL regulations?

Kevin Falkingham From Aryza’s perspective, we focus on preparedness for upcoming regulations, using horizon scanning and adaptable systems that can adjust to regulatory changes. Our products are flexible and have already adapted to regulations around breathing space, vulnerability, and Consumer Duty. Aryza is equipped for BNPL regulation and is ready to support clients as these changes take effect.

How does Aryza’s system support BNPL providers in maintaining transparency and managing regulatory risks?

Kevin Falkingham In the BNPL space, many companies are now adopting a methodology that focuses on being very clear, comprehensive, and transparent upfront about financing terms. This includes providing information on rates, fees, repayment terms, and any potential penalties. Our system is designed to address these areas of concern and risk effectively. Additionally, BNPL providers also face the risk of regulatory issues related to advertising standards if their practices do not fully comply with the guidelines set by the Advertising Standards Agency.

What impact will FCA regulation have on BNPL advertising and influencer recommendations?

Kevin Falkingham That will really come into effect next year when BNPL products fall under FCA regulation. Any company advertising BNPL without FCA authorization as a lender will face serious repercussions. Similarly, Finfluencers promoting specific BNPL products without being regulated will also face strict penalties. Currently, there are few restrictions since BNPL is not yet a regulated product, but once it is, only authorized providers will be able to offer BNPL, and only regulated individuals will be allowed to recommend it.

How might BNPL regulations influence consumer behaviour and company strategies?

Kevin Falkingham We might see market trends shift as BNPL regulations come into play, especially since younger audiences often favour BNPL over traditional options like credit cards or overdrafts. This could lead to changes in consumer behaviour. Companies like Klarna and PayPal, for instance, may reassess their approach to BNPL in light of these regulations, weighing the risks and rewards.

How Aryza Can Help:

• Aryza’s software automates credit assessments, allowing BNPL providers to make quick, informed decisions based on customer financial behaviour.

• Integrations with e-commerce platforms streamline the application process, making lending more accessible and transparent.

• Risk management features support vulnerable customers with tailored options like breathing space, aligning with Consumer Duty.

• Advanced analytics use credit bureau and open banking data to improve affordability checks, helping prevent debt accumulation.

• Aryza ensures transparency in terms and conditions, covering rates, fees, and penalties to meet advertising standards.

• Compliance support includes automated regulatory reporting and document generation, helping BNPL providers stay within FCA requirements.

• Horizon scanning and adaptable systems keep Aryza’s BNPL partners prepared for regulatory shifts and market changes.