Regulation is Coming to POS Finance: Why Responsible Lending Will Benefit Retailers

As economic pressures and living costs surge, more people than ever are considering using point-of-service (POS) finance — such as buy now, pay later and installment loans — to manage their cashflow. In fact, recent figures from Juniper Research show that the number of POS finance users is set to surpass 900 million globally in the next five years. It’s clear that there is a consumer-driven need for more flexible finance and smarter buying power. 

This trend follows changes in the retail sector, which has recently seen a shift toward an omnichannel approach and subsequent changes in how consumers spend. Old corporate-driven models of offering consumer credit are becoming outdated, leaving modern POS finance solutions the clear frontrunners. 

While this consumer-driven shift toward more flexible payment methods is good news, many consumers are also seeking to buffer themselves from coming economic storms. Skyrocketing inflation, surging living costs and more economic uncertainty are putting household budgets under unprecedented pressures.

According to the UK’s Office for National Statistics, as of September 2022 a staggering 91% of adults have reported an increase in their living costs compared to the same time one year ago. More than three-quarters say that costs became more expensive just in the previous month alone. While many consumers have lived through economic instability before, what’s different this time around is that people across all income brackets and all demographics are scrutinizing their finances like never before.


With UK borrowing on credit cards growing at an annual rate of 12.9% in August 2022, the fastest pace recorded since 2005, the worry for many people is that with their finances already stretched, costs will continue to climb higher and access to traditional, rigid forms of credit will become more difficult.

As consumers seek more flexible and affordable forms of borrowing, POS finance and interest-free credit will gain even more momentum — and so will scrutiny over consumer safeguarding and debt levels.

What Increased Regulation will Mean for Consumers and Retailers 

Over the past few years, media stories have focused on high fees for late payments, credit scores being damaged and the complex credit agreement jargon that makes it difficult for consumers to understand their rights. The perception is of an industry that’s trying to encourage people to spend recklessly, with unscrupulous providers trying to squeeze as much money as they can from people in difficult financial circumstances.

These misconceptions ignore the reality that interest-free credit is being used — and used responsibly — by consumers across all income groups, including those with healthy credit records who just want more choice and flexibility in how they pay for things. This is particularly true of large-ticket purchases such as sofas, home improvement projects, weddings and even veterinary bills.

Nevertheless, it should come as no surprise that regulators are preparing to usher in sweeping oversight of the POS finance sector. Previously, zero-fee credit agreements of under 12 months were outside of the scope of the UK’s Financial Conduct Authority (FCA). But a year on from the Woolard Review, which found that the use of interest-free credit products nearly quadrupled in 2020 to £2.7 billion, plans are being put in place to include POS finance in an amended version of the Consumer Credit Act 1974, with providers needing FCA approval and being required to offer affordability checks to potential customers.

Additionally, advertisement and incentive campaigns to sign up for POS finance will become subject to the Financial Promotion Regime to ensure they are not misleading or unfair. And if consumers have reasonable cause for complaint following a POS finance purchase, they can pursue redress through the Financial Ombudsman Service.

Going Above and Beyond to Provide Responsible Lending

It’s very important for the POS finance industry to take the lead in making sure consumers and merchants are protected and that they have all the information they need at their fingertips. In the absence of immediate, stricter formal regulation for the industry, DivideBuy and many other POS finance providers have done exactly that — going above and beyond current FCA guidelines to implement best practices and standards to ensure the consumer remains protected and front of mind. 

While many POS finance providers are happy to onboard customers without thorough affordability checks and apply late payment fees to consumers, the merchant still has to deal with loss of items, the financial loss of not receiving repayments and even more fragile profit margins. It is in nobody’s interest to onboard financially delinquent customers or customers with affordability problems.

At DivideBuy, we look at the individual’s past and present circumstances to gain the clearest picture of their financial situation and use “soft search” credit checks during credit applications that won’t harm the applicant’s credit score.

Ensuring due diligence on credit applicants is not the only proactive measure providers can take. We continuously work with our merchant partners to ensure that credit agreements are as clear and transparent as possible, so that consumers know exactly what they’re signing up for, how much they’ll be paying and what help they can access if they fall into financial difficulties. 

Any business that relies on penalizing consumers with late payment fees to make their revenues is neither ethical nor sustainable. When provided in transparent, ethical ways and by regulated providers, POS finance can support people at different stages throughout their entire adult lives, helping them to make considered and informed purchasing decisions.

It’s clear that POS finance is here to stay. But by making POS finance as clear and as transparent as possible, regulators, providers and merchants can ensure that consumers are educated and get the safeguards needed to use POS finance in the right and responsible way. 

Teresa Byrne is Chief Commercial Officer (CCO) at DivideBuy. She joined the company in December 2021, moving from her role as International Commercial Director at Barclaycard. As CCO Byrne is responsible for positioning DivideBuy as the go-to option for interest-free credit for customers and retailers across the globe, and sharing the company’s vision for responsible lending that supports people during key milestones in their lives. She is also working with her team to continue DivideBuy’s dramatic growth, which has been accelerated by the £300 million investment the company received in September 2021, by encouraging the onboarding of new retailers and creating educated, empowered customers.

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