A lot has been happening in the realm of Buy Now Pay Later (BNPL) and depending who you ask, latest developments are either sure fire affirmation or total disaster.
Those that are Pro say that the shopping phenomenon is here to stay, putting down roots and settling nicely into its upwardly mobile family of lending and financial accessibility products.
Those against rail that BNPL has lived too fast too young, spread like a heinous virus and sent shockwaves to the heart of consumer regulation.
To summarise a few events:
In June 2024, Apple announced it would no longer offer Apple Pay Later, having only launched it the year before using the Mastercard network issued by Goldman Sachs, although Apple supported the actual loans itself.
In its place it will be offering instalment loans through Affirm at POS in the US but also through credit cards with Citi, Synchrony, and Fiserv issuers in Australia (ANZ), Spain (CaixaBank), the UK (HSBC, Monzo).
As a side note, in late 2023 Synchrony and Citi were tipped as potential contenders to take on the ill-fated Apple and Goldman credit card partnership, as well as Capital One.
News of Laybuy’s administration came in the same month, and all this just one month after US regulators piped up about bringing BNPL into line. The outlook for BNPL all of a sudden seemed shaky at best.
In May 2024, the US Consumer Financial Protection Bureau (CFPB) issued a decree of sorts calling out BNPL lenders as creditors in the same way that credit card providers are.
The move was in line with Regulation Z, which enforces clear, comprehensive and upfront information on financial products, protecting consumers against exploitation or misleading practices.
Specifically, the area of concern it seemingly sought to extend to BNPL under Regulation Z was “those provisions governing periodic statements and billing disputes”, which would cover transparency around refunds, quality, delivery among other things.
In the UK, BNPL has been under watchdog scrutiny for some time now, and it is on course to becoming fully regulated by the FCA after an industry consultation and response were published by the government, followed by draft legislation from the Treasury.
A disparity in reporting payment history to credit agencies has been a growing concern for some, as customers can run up several plans simultaneously without checks.
Welcome to the World of Regulation
Being welcomed into the regulatory fold is not a tolling bell for BNPL, it was always going to be inevitable if BNPL were to keep growing in popularity. If anything it is a nod to its success and long term viability.
And one can understand why the likes of Klarna has come out against the US announcement, because BNPL is absolutely a distinct offering from traditional credit cards and it represents an absolutely brilliant offering for its many users who work the interest-free instalment plan to its full (which is most of Klarna’s customers as the company boasts global defaults at a miniscule 1%).
The CFPB ‘Interpretive Rule’ is more of a broad brush stroke than the UK’s and other global governments’ more nuanced responses to regulate the industry and Klarna likely feels this could tarnish the reputation by tarring it with the same brush, so to speak.
Either way, what Klarna can’t account for is the bandwagon it has created and the potentially not-so-scrupulous opportunists that might not be able to resist jumping onboard, who definitely could break up the party.
And so, clear rules for all should be welcome.
Payments Cards & Mobile Opinion
These developments are more a sign of the harsh economic times than a foundering sector.
In fact, the Apple move is very much spreading the net. What it likely means is a tougher ride for smaller outfits to survive or even start out, but that isn’t singular to the BNPL market at the moment, unfortunately.
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