Perhaps the most worrying trend for banks is that BNPL players are expanding into more traditional banking services. PayPal, which has lifted the upper purchase limits available via its Pay in 4 option, now allows customers to repay directly from their bank accounts, rather than credit cards. Others are moving into the B2B space. Australian FinTech, Spenda, positions itself as offering faster, more flexible “non-bank” lending that helps businesses grow.
Ensuring ethical lending and mitigating risk of defaults
The rapid growth of BNPL has caught the attention of regulators, who are considering various approaches designed to protect consumers.
The Australian Securities and Investment Commission looked at the market in depth, with Australia’s Treasury accepting an industry self-regulatory code for now. In the UK, the Woolard Review recommended regulation; legislation was passed in 2021 with HM Treasury currently consulting on orders to implement this.
Across Europe, other countries have legislated or are considering legislation about the prominence of credit on retail websites. In the US, in December, the Consumer Financial Protection Bureau launched an investigation into BNPL offerings, saying it was particularly concerned over the speed with which consumers can rack up debt via the plans, a lack of sufficient regulatory disclosures and the collection of customer data.
Many of regulators’ biggest issues with the BNPL model echo concerns of some within the industry around its long-term future. With an estimated 25% of some BNPL platforms’ revenue coming from missed payments, questions are being raised about the sustainability of the model. A lack of consumers’ credit transparency and affordability is also a concern due to the increased risk of defaults. The UK’s Woolard Review found that 10% of customers of one major bank who used BNPL for the first time were already in arrears.
Banks considering BNPL offerings will need to heed these concerns – and how regulators may mitigate them – if they are to build a model that is sustainable, compliant and balances the interests of the business and consumers.