Securitisation of Buy Now Pay Later Loans as the deferred payment credit sector booms

The Buy Now Pay Later (BNPL) sector is growing and moving at a sprinter's pace. No longer the niche payment method of millennials making relatively low value fashion and cosmetics purchases, the demographic of BNPL borrowers is evolving, the types and value of items that can be bought using deferred payment credit has expanded, BNPL apps can be used instore as well as online, and can be used even where there is no partnership between the BNPL provider and the retailer. Even the banks and traditional lenders, keen to capture income which has been diverted from their credit card and personal loan income streams, are getting involved.

There is no slowing of the growth in this sector, revealed in the Woolard Report (and as we discussed here) to have quadrupled in 2020 and witnessed by the Brodies securitisation team as we advise on increasing BNPL-derived consumer receivables securitisations.

Regulation of BNPL products which currently benefit from an exemption to FCA regulation is on the horizon. However, while the Woolard Review called for urgent legislative action in this sphere to bring BNPL within the regulatory perimeter, and despite the FCA's statement in its 2021-22 Business Plan that it will consult on new rules in 2022 once the Treasury has consulted on the scope of the regulatory regime, there is as yet no sign of the Treasury consultation.

Consultation on the scope of the new regime and the FCA rules, and the subsequent implementation of those rules, will take time, during which we can expect the BNPL sector to continue to develop and build momentum. After a slow start, once regulatory change gets out of the starting blocks it will need to catch up with a pacey, dynamic and burgeoning BNPL sector. Regulation will likely impact the securitisation of BNPL-derived receivables; originators and investors looking to enter into these types of securitisations in the future should be alive to the knock-on effects of the new regulatory regime once the details become clearer.