The Current Account: The Latest Headlines From Across The Banking Sector - February

Welcome to The Current Account! We hope you enjoy our latest round-up of the top news from the industry in February.

Headlines from the banking sector this month

In this edition of The Current Account, we look at two Consultations the regulators are focussed on: regulating BNPL products, and the digital Pound…

FCA to regulate BNPL products…

• BNPL is a credit product and to date has not been regulated to provide consumers with the same safeguarding and protection as with other credit products. A significant proportion of BNPL consumers are on low income and whilst the amount being borrowed is often small, the consequences of not being able to repay the debt aren’t. A recent survey showed that a third of 18-34 year olds have been charged late payment fees.
• New data reveals that the utilisation of BNPL services soared last year as more than 4 million new customers opted for these products to safeguard their finances against the surging cost of living crisis. Equifax reported that over 4.1 million shoppers used these services for the first time in 2022, and currently, more than a third of UK shoppers have used BNPL, a significant rise from 26% in 2021.
• At the beginning of 2021, the government declared its plans to regulate BNPL products and conducted consultations on policy options to implement a fair approach to regulation by October 2021. A consultation response was released in June 2022, and currently, the government is seeking input from stakeholders on the proposed draft legislation that will bring BNPL under the regulation of the Financial Conduct Authority (this consultation closes April 2023). The government says the new regulations would protect an estimated 10 million customers.
• The new rules will mean that:
• Lenders will need to ensure BNPL advertising is clear, fair, and not misleading.
• Consumers will get powerful Section 75 protection on purchases made using BNPL.
• Consumers will have the right to complain to the Financial Ombudsman Service.
• The FCA will make sure the new rules are being met by BNPL firms.
• The upcoming regulations do not seem to have deterred firms from offering these products and innovation in this area is still rife – with Santander recently releasing a business-to-business (B2B) buy-now-pay-later service described as a ‘game changer’.

PEN Point Of View:

The question of whether regulating BNPL has come too late is a matter of perspective. Some contend that the swift uptake of BNPL offerings has resulted in substantial consumer risk, necessitating urgent regulation to prevent additional harm. Conversely, others maintain that regulation may impede innovation and market competition. It is critical for regulators to find a happy medium between safeguarding consumers and fostering innovation and competition in the marketplace.

The digital pound may be here later this decade…

• HM Treasury and the Bank of England have published a joint consultation on the potential case for a UK central bank digital pound, which closes on 7th June 2023, which, if approved, is expected to be in place later this decade. A decision on whether to introduce the digital pound is due to be made by 2025. The announcement has sparked a lot of interest, with online searches for ‘digital currency’ increasing by 434% following the news.
• To accompany the Consultation Paper, the Bank of England has also published a Technology Working Paper which sets out the emerging thinking on technology. The paper explores six technology design considerations; privacy, security, resilience, performance, extensibility, and energy usage.
• The Bank of England has asked for feedback from the public to decide whether to introduce the currency and has been very quick to emphasise that it is not like cryptocurrencies, and its value would be aligned with the pound.
• There is no plan to phase out cash and the Bank of England has stated that physical cash will always exist. But with the decline in the use of cash (physical cash accounted for 60 percent of transactions as recently as 2008, but now makes up only 15 percent), the Treasury and Bank of England believe that the digital pound will be needed to ensure efficient payment systems in the future.

PEN Point Of View:

The introduction of a digital pound will bring both benefits and challenges, and if given the go-ahead will need to be implemented with careful consideration. Some of the benefits include increased accessibility, improved efficiency, and enhanced security. However, the adoption of a digital pound could leave behind those who are unwilling or unable to use digital devices and further accelerate the disappearance of bank branches, leaving some people with limited options to access cash.

And in case you missed it…

• The European Central Bank plans to carry out targeted assessments and conduct on-site inspections at banks following the identification of deficiencies in their digital transformation plans.
• UK banks are poised to announce record profits of £37 billion, surpassing levels seen prior to the financial crisis.
• The number of active UK open banking users has increased to over 7 million for the first time.

Thanks for reading the latest edition of The Current Account. If you're interested in hearing more about any of the topics discussed here, feel free to connect with me on LinkedIn or contact me via our website. 

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