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Buy Now, Pay Later

BNPL: The Biggest Challenges of BNPL [Part 2]

December 8, 2021
BNPL: The Biggest Challenges of BNPL [Part 2]

This past October, PerformLine hosted a panel discussion at the Money20/20 USA conference with experts from Sezzle, Alliance Data, and Snap Finance titled “Innovations and Challenges Ahead for Lenders in the BNPL Era.

For part 2 of this BNPL blog series, here are the biggest challenges leaders in the BNPL space see in the future and how to stay ahead of them.

It’s Crowded – Move With Urgency

The buy now, pay later space is quickly becoming crowded, and it has proven difficult to rise within the industry. Rick Cunningham, Senior Vice President of Strategy and Business Development at Alliance Data, states: 

It is a very crowded market, one of the challenges is to cut through the clutter and move with speed and purpose. If you look at the BNPL market today, it’s roughly $100 billion in volume, which is just 2% of global economic sales of $4.6 trillion, so there’s a lot of room to grow. But, on the flip side, the major players are consolidating as we saw with Square acquiring AfterPay. Major players are also differentiating and diversifying, we see this with PayPal and Venmo aggressively going in-store with their solution. BNPL is winning but they are deciding winners in the space very quickly, and those winners are extending their gains. To go back to the point, I would suggest moving with speed and purpose, and have a very clear path to differentiation as a way to excel.

Regulation is Looming

Overseas regulators have been more proactive in the BNPL areas, especially with new product offerings. In the United Kingdom, the Woolard Review released a report earlier this year that discussed BNPL products falling under the purview of the Financial Conduct Authority (FCA). The UK Treasury published a consultation paper setting out policy options for the regulation of BNPL credit agreements. The Monetary Authority of Singapore has similar concerns around the definition for the type of lending that BNPL would be considered and is assessing if a regulatory framework would be needed in the future as the payment service becomes more widely used. 

In the U.S., it appears as though regulation is coming soon. In a recent hearing, the House of Representatives investigated the risks and benefits of the BNPL payment method and other emerging fintech cash flow products. House Democrats were skeptical of the BNPL lenders as they questioned whether the product put consumers at risk of falling behind on loan payments. They also questioned why BNPL lenders don’t report customers’ repayment history to credit bureaus when that could help borrowers improve their credit scores or allow others to qualify for traditional credit. 

Wherever these BNPL companies are in the world, they can expect some sort of regulation sooner rather than later. 

Check out this map for more details of BNPL regulatory happenings across the globe.

Getting Out Ahead of Regulations 

The number of mergers and acquisitions happening within the BNPL industry is steadily increasing, as companies seek to gather knowledge and expertise in the compliance and regulatory space from these mergers. Mylee Vigness, Head of Innovation and Growth at Snap Finance states:

In the world we live in today, we have to stay in tune with what’s happening in the regulatory and compliance space. The acquisitions happening in the industry, especially the new BNPL product companies merging with these traditional financial companies, are smart. By acquiring these firms they are acquiring knowledge and expertise in the compliance and regulatory space rather than trying to do it themselves.

Where the industry is heading in terms of regulation-we can’t predict that. But, I believe that we are just scratching the surface and there will be regulatory oversight, even if it doesn’t fall within lending regulations as we know them today. Keeping our head up as an industry, staying focused on the consumer, and having our financial offerings be clear, easy, and understandable is critical for the success of the industry as a whole.

The Unknown for the CFPB 

There is a lot of unknown when it comes to an understanding of what BNPL stands for. This leads to confusion with consumers, which turns into complaints filed against those products and companies. Chris Bixby, Vice President of Growth at Sezzle, expresses:

In regards to incoming regulation in the BNPL space, regulators typically start with consumer complaints and how consumers are talking about our product. We are always super focused on providing access to a younger generation- a new generation that may not typically have access to credit. We think that’s a really good thing from a CFPB regulatory and administration standpoint in terms of providing access to a consumer that may not have had access before.

In terms of reporting to credit bureaus, that is something we’re already very proactive in. We’ve talked about credit stacking as one of the concerns and one of the risks within the industry, as BNPL does not report to credit bureaus. That is an area that we think may start to evolve and manifest itself.

Other challenges in the industry include COVID, online shopping, changes in credit, and changes in consumer behavior. I think that the challenges and opportunities will be how this gets done at the retail level. So corporate cards have been a big part of this-will there be white labels? Will there be green labels? What is the role of brand technology and where will we fit in compared to other solutions out there?

John Zanzarella, Vice President of Sales at PerformLine, says:

Typically from a regulatory standpoint we see the regulators looking for companies who are making a good faith effort to ensure that they are monitoring, discovering, and acting on anything potentially harmful to the consumers. 

From where PerformLine sits, it’s been encouraging that so much of the US-based BNPL industry is already thinking about compliance, they are being proactive in that regard, and when the regulation comes a lot of them will be much more prepared for it than those who don’t currently have anything in place.

Check out our compliance checklist of the top items that Buy Now, Pay Later lenders should keep in mind when crafting their compliance programs across marketing, merchant services, and customer service.

Being Transparent

With the emergence of this new space in the financial services industry, being as transparent as possible is the best approach any BNPL company can take according, to Chris Bixby:

As a category and as a company, I think being as transparent as possible is the best approach. It’s a big part of who we are and in this industry-because again there are a lot of unknowns and it’s very new-there are still the questions around, ‘There is really no interest, how do you do underwriting? How do you have approvals at 90%?’ There are a lot of things in terms of our model that do things that kind of make sense as you go through the path of the underwriting process and what we look for. 

But for us, there’s nothing we’re doing that we are not willing to, able, and want to share with regulators, merchants, and consumers, so we really lean into that opportunity. I think other opportunities will continue to be in these industry groups and bringing this awareness forward and that validates everything PerformLine is doing in terms of making sure compliance and regulatory training for the consumers is a top priority each and every time.

Be ready for regulation before it happens

No matter where you are in the world, it’s never too early to implement a scalable marketing compliance monitoring program. PerformLine is the #1 sales and marketing compliance platform in the BNPL industry, ensuring regulatory and brand compliance across merchants and channels for the top BNPL around the world.

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