The Dutch government has moved to limit the expansion of "buy now, pay later" (BNPL) services in physical retail outlets, citing concerns about the financial risks these schemes pose to consumers.

Finance minister Eelco Heinen and minister for legal protection Teun Struycken outlined the government’s position in a letter to parliament sent on Tuesday.

BNPL services, which allow consumers to divide payments into smaller, interest-free instalments, have grown significantly in popularity since the COVID-19 pandemic, particularly for online purchases. Providers such as Sweden-based Klarna have driven much of this growth.

The ministers expressed concerns that BNPL services could lead to earlier and larger debts, especially among younger consumers. "Although an outright ban would be unfeasible due to EU regulations, we believe it is essential to address the financial risks linked to BNPL, which could exacerbate debt issues for vulnerable groups," Heinen wrote.

The government specifically urged Klarna to halt its plans to roll out BNPL services in physical stores within the Netherlands. Klarna, in response, defended its products and highlighted Dutch consumers' responsible usage of BNPL options. "Any discussion about limiting BNPL must also tackle the risks of more harmful credit options like credit cards. In the Netherlands, 99.4 per cent of Klarna loans are repaid in full, showing Dutch consumers’ responsible use of our products," a Klarna spokesperson told Reuters.

The Dutch government has also engaged with other BNPL providers, including Zalando and Amazon. Unlike Klarna, these companies have yet to sign a code of conduct mandating customer age verification.

In a related development, Dutch payments group Adyen recently extended its partnership with Klarna to in-store payment terminals across Europe, North America, and Australia. However, Adyen clarified that the BNPL expansion in the Netherlands remains in the pilot phase and has not yet been implemented.

The move to address BNPL in physical stores mirrors broader regulatory scrutiny of such schemes worldwide. For example, in the UK, the Financial Conduct Authority is introducing rules that will require BNPL providers to assess customers' affordability and provide clear loan terms. Meanwhile, in the United States, the Consumer Financial Protection Bureau is considering tighter oversight of BNPL lenders following calls from consumer advocacy groups.

As the debate continues, the Dutch government’s efforts to curb BNPL expansion signal a growing awareness of the financial risks posed by new payment technologies, even as they remain popular with consumers.

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