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The Danish Financial Supervisory Authority (DFSA) is consulting on how to regulate the burgeoning buy now, pay later (BNPL) market, which could see Denmark joining European counterparts such as the UK and Ireland in adding new rules.
The DFSA’s consultation, titled "Consultation on the draft bill amending the Consumer Loan Companies Act, the Payment Accounts Act, the Money Laundering Act and various other acts" and available in Danish, aims to weigh proposed new rules for this fast growing market with the compliance burden for BNPL players that operate in the country.
According to research, BNPL payments in the country are expected to grow by 42.1 percent this year to reach $4.8bn.
Denmark is also home to ViaBill, which has partnered with Mastercard and, in February this year, secured $120m in an equity and debt financing round.
“In recent years, there has been an increase in the number of companies offering interest- and cost-free credits,” the consultation says. “There has also been a development in what can be financed. Today, it is thus possible to get both sweets and pizza financed by such a loan. Therefore, the credits have also been referred to as pizza loans.”
However, the DFSA warns that this also poses risks to consumers.
“Loans of very small amounts can grow disproportionately large. Even in some cases long after the purchased item, such as a pizza, is consumed,” the DFSA have said.
If adopted, the bill means that third-party companies offering BNPL arrangements will become subject to consumer credit regulation including licensing, information and credit assessment requirements.
Currently, in Danish law, such providers offering credit free of interests and other fees are exempt.
Under new proposals, sellers offering BNPL arrangements with a duration of more than 90 days will become subject to the requirements.
Debit cards with deferred payment, where the total transaction amount is debited to the cardholder's account on a pre-agreed specific date no later than 40 days after the transaction, without interest or other fees, will still be exempt.
For example, use of deferred debit is a common feature of bank accounts in Denmark.
“The initiative must, therefore, for the benefit of consumers, establish a framework for this type of lending, which has not hitherto been subject to regulation,” said the DFSA. “The initiative aims to ensure that consumers can only obtain such credits if their finances can bear it.”
Stakeholders now have until August 18 to respond to the DFSA’s call for views.
Denmark is not the only country that looks set to increase BNPL oversight in the near future.
In May, Ireland became a first mover in adopting BNPL regulations as part of the country's consumer credit reforms.
Ireland’s central bank confirmed that it will be applying its consumer protection rules to BNPL firms among other services. This was enabled through the Consumer Protection Act 2022, which came into effect in April, and targets retail credit and credit servicing firms.
The UK government has also committed to BNPL action. Following pressure from parliamentarians and charities, UK firms will be required to ensure loans are affordable and rules will be amended to ensure advertisements are not misleading.
