Major high street bank to launch new buy now, pay later product next year to rival Klarna and PayPal
A MAJOR bank is gearing up to launch a brand new “buy now, pay later” product to rival the likes of Klarna, ClearPay and PayPal.
Lloyds Bank is creating its own “split payments” option that will allow its customers to spread the cost of items and services bought online over time, The Sun understands.
The product will be fully regulated by the Financial Conduct Authority (FCA), which most buy now, pay later (BNPL) products currently aren’t, but will be by 2026 under plans by the government.
It is understood the product will be an entirely new and independent payment option that will appear at checkouts like Klarna or ClearPay and won’t be linked to existing products like credit cards.
In some cases, it may be offered as an exclusive split payment option for its 27million customers, while at other merchants it will appear alongside other similar payment options.
Lloyds will also launch a dedicated mobile app for the product where users will be able to see all of their instalment plans in one place.
While Lloyds could not confirm exact timings, it is understood the product could be available from as early as next year.
It will only be available with a small number of merchants initially and will then roll out more widely, with the long-term goal being to “show up at the end of millions of online purchase journeys”.
The focus will be on targeting merchants that offer goods and services where it makes sense to spread payments.
It is not currently known whether the product will charge any extra fees or what the interest rate will be, but Lloyds said it will update The Sun when it has more details to share.
Lloyds is creating the product following feedback from customers that they wanted more payment options when buying online.
Lloyds has also reported seeing an increase in customers choosing to spread their payments over time, which has led to it wanting to create its own offering.
It is understood that the bank is currently recruiting extra staff internally to help with the rollout of the product, and is working with New Day, the firm behind the John Lewis Partnership Card.
The plans follow the launch of US BNPL brand Affinity in the uK earlier this week. It will let users pay in instalments such as six, nine or 12 months and will not charge any extra fees.
They also come after a recent announcement from the government to pass legislation to regulate the buy now, pay later (BNPL) sector by early next year, with regulation in place by 2026, as revealed exclusively by The Sun.
The new rules will mean BNPL users will get extra protections when using the products, including Section 75 protection and the ability to complain to the Financial Ombudsman if things go wrong.
It’s important to make sure you can afford to meet any payments before taking out an instalment plan to avoid damaging your credit score or ending up with any late fees.
The history of banks and BNPL products
Lloyds Bank is not the first lender to venture into the BNPL space.
Rival high street bank NatWest has previously had its own BNPL product, which was available for its 18million customers – although was used by far fewer.
NatWest launched the product, which allowed customers to spread purchases over four interest-free monthly instalments, to much fanfare in summer 2022, saying it had seen “clear demand” for BNPL.
But the bank axed the product on May 7 last year after seeing far lower take-up than expected.
Credit card provider American Express also launched its own BNPL option, “Plan It”, in February this year.
The option allows customers to spread payments over three, six or 12 months interest-free with a fixed monthly fee.
Usually with a credit card you pay off the full balance each month at no extra cost, or make the minimum repayment and pay interest. But Plan It means they can extend the interest-free period for a small fee.
For example, repaying £1,000 over six months would come with a £10.70 monthly fee – so £64.20 overall – while borrowing with 30% interest would cost £95.79 per month.
Credit card need-to-knows
Not using a credit card effectively can wreak havoc on your finances and your credit score.
If you don’t keep up with repayments or default on your debt, you are likely to get a black mark on your credit record, which could affect your ability to get a credit card, loan or mortgage in the future.
It’s important not to let yourself get sucked into overspending.
You should always clear the full balance as soon as possible.
If you have a poor credit score, don’t bank on being approved for a card or getting the 0% deal you’d hoped for.
Card providers only have to give the advertised rate to 51% of applicants, so you could end up paying more interest than you bargained for.
If you’ve got a poor credit record, you’re less likely to get the best rates.
And if you are looking for a new credit card, don’t apply for lots at once.
After your 0% period is up, lenders can charge upwards of 40% interest, so if you have not repaid the debt fully by then, try to move the debt onto another 0% deal.
What are the BNPL regulation changes?
The Labour government confirmed last month that it intends to legislate to bring BNPL products under the FCA’s rule by early 2025, which would mean regulation would kick in by 2026.
Plans to regulate these products have been repeatedly delayed, which is bad news for shoppers as no regulation means customers aren’t protected if things go wrong.
Under the plans, firms will have to be clear and transparent about late fees and how they could impact customers’ credit ratings.
Affordability checks will also be strengthened and shoppers who feel they’ve been treated unfairly will be able to complain to the Financial Ombudsman Service (FOS), which resolves disputes with financial firms.
These products will also be subject to the Consumer Credit Act and Section 75, so shoppers will be able to complain if products are falsely advertised and can get their money back if items are faulty.
Some split payment products are already regulated. For example, Zilch, which is considered a BNPL firm, is already under FCA regulation.
Do you have a money problem that needs sorting? Get in touch by emailing squeezeteam@thesun.co.uk