January 13, 2022
Viewing BNPL providers uniquely and focusing on the consumer first should be guiding principles, the experts say.
Good afternoon! Last month, the CFPB opened an inquiry into ‘buy now, pay later’ services, so we asked BNPL experts about the context regulators should have as they look into the data. Questions or comments? Send us a note at firstname.lastname@example.org
Head of North America at Klarna
Traditional financial institutions today too often view consumers, especially those who can least afford it, as profit centers through aggressive hidden fees, interest payments and overdraft fees. Unlike credit card companies that rely on large annual fees and revolving interest charges from consumers, BNPL solutions like Klarna offer zero-interest payments, are designed to be repaid in-full on a regular and transparent schedule and make money by partnering with merchants to share a small percentage of the overall transaction.
A consumer-friendly alternative to traditional credit cards and 30% APRs is overwhelmingly a good outcome for customers. Klarna is a licensed bank with 90 million customers globally and 250,000 retail partners, and we operate in 19 markets, offering regulated products in many of them. Proportionate, outcomes-based regulation is a good thing, and we welcome it. But the focus needs to be on protecting consumers, not the traditional banks, and enabling innovative solutions, competition and superior alternatives to high-cost credit within the appropriate guardrails. Viewing BNPL providers through a unique, nontraditional lens is the first step in this important process.
Head of Global Business Solutions at Fiserv
Consumer choice is a pivotal component of a positive consumer experience. While consumers continue to pay with credit, debit, cash and even check, many consumers view BNPL as a valuable option that provides them flexibility in how they manage their spending. It is our goal to ensure merchants and financial institutions can enable all of the payment options consumers want to use.
With that said, it is essential that every consumer is educated about their payment options so they can confidently make an informed choice on the one that is right for them in any given situation. This means understanding how different payment types work and the impact if the consumer is unable to fulfill their payment obligation. Regulation that promotes better education and communication helps preserve consumer trust in payment services.
Co-founder and CEO at Burnmark
It’s quite interesting that consumer credit is a highly regulated industry, but BNPL is unregulated in most countries at the moment. According to the FCA, 11% of consumers in the U.K. used BNPL since the start of the pandemic with a transaction value of £2.7 billion in 2020. As the industry has grown, regulators have taken a keen interest in its dynamics, including the way interest is charged (or not), period of payment and the value of transactions.
The aim of regulation around BNPL is quite simple — reduce debt, prevent unbreakable debt cycles, make available all credit choices and ensure marketing/communication neutrality. The regulation, in my opinion, thus should focus on three key areas. Firstly, relevant credit worthiness checks need to be carried out to assess current and potential debt of consumers entering into the transaction. Secondly, more choices should be made available to the consumer, including regulated products, along with clear guidelines on the impact of each of those choices. Finally, marketing messages have to be scrutinized and complain mechanisms created to avoid spurious retail BNPL agreements.
CEO and Co-founder at Sunbit
This is not uncharted territory or the Wild West. While we tend to think of BNPL as a new concept, in reality, it is a modern way to offer the installment loans that Americans are rather familiar with and that are already heavily regulated by federal and state laws — brought to the point of sale. For responsible BNPL companies already providing their technology to a banking partner, adherence to all applicable legal and regulatory standards at the federal and state levels has always been the norm, and a requirement.
What is different about BNPL is that the right solutions bring innovation, transparency and personalization to the credit market, a market that historically made its bread and butter on fees and the highest interest rates possible. Moreover, I believe that the right solutions make it possible for consumers to access needed goods and services, not just “nice-to-haves.”
Sunbit technology is used to offer consumer financing products in a transparent, consumer-friendly way — for example, without origination fees or late fees — with reasonable rate, and with no unpleasant surprises, all for needed and mostly non-discretionary goods and services.
I believe that those who survive and thrive in the BNPL arena won’t be random. Outcomes will depend on how proactive and thoughtful an approach leaders take to their merchant partners, consumers and other stakeholders, all while operating in a compliant fashion.
Head of Markets at Atomic Financial
See who's who in the Protocol Braintrust and browse every previous edition by category here (Updated Jan. 13, 2022).
If 2021 was the year consumers took BNPL seriously, 2022 is the year when regulators will. Regulators should pay attention to customer-born fees. Today, BNPL companies report merchant fees as key to revenue. But as regulators, including the CFPB, open inquiries into key BNPL credit providers, they should monitor loan loss rates and late fees, especially if they grow over time.
Kevin McAllister ( @k__mcallister) is a Research Editor at Protocol, leading the development of Braintrust. Prior to joining the team, he was a rankings data reporter at The Wall Street Journal, where he oversaw structured data projects for the Journal's strategy team.
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