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Is Buy Now Pay Later the Credit Choice of the Future?

payment and credit card marketing compliance

Buy Now, Pay Later (BNPL) services are nothing "new." In fact, if you are as old as I am, you may recall seeing those catalogs that came through the mail filled with all kinds of enticing offerings that would allow you the option of paying in full or over a set number of monthly installments. Even some of the television shopping clubs offer you the ability to get your goods now and pay over a few "easy installments". Consumers have always taken advantage of services like this, however, in the age of online purchasing, the BNPL persona is changing and you can best believe that regulators are taking notice.

There has been a rise in retail websites offering BNPL options during the coronavirus pandemic as people have taken a liking to the idea of online shopping. In fact, during 2020, the way we shopped shifted from a quick drive to the mall to almost exclusively purchasing items online. If your home was anything like mine, there was a delivery truck arriving almost daily (I'm literally on a first-name basis with some of the delivery drivers). As I began to do larger projects around my house to pass the time during the pandemic, I sought out the best deals, and if there was no hurry, I would place my order online. I began noticing the option to make my purchase and pay over a set number of payments. It is now more common to see the option than not, and apparently, consumers are using this option more and more.

For many with little or no credit, online purchasing can be a challenge. And, for those with tighter financial means, having the option to get what you need now and pay it off over time can be considered a game-changer, especially for those that need to maintain some cash on hand for unexpected emergencies. In the last year, the industry has continued to see amazing growth and the number of people willing to utilize this option does not appear to be letting up. 

While the age of the BNPL consumer varies, the typical consumers using BNPL services fall in the Gen Z category. They are younger, tech-savvy, middle income, and often (by choice) have little or no credit. The other demographic utilizing these services are millennials who seem to appreciate the flexible payment option and the ability to responsibly pay for their purchase over the course of a few payments, often with zero interest. The only drawback seems to be for those that miss their payments, as they can find themselves taking a hit to the pocket with late fees and a ding to their credit rating, which can impact one's ability to get traditional credit, or other loans.

The BNPL model has also proven to have been great for many merchants that otherwise may have not been able to move merchandise as quickly and consumers seem to be more willing to purchase those things that they may have otherwise avoided putting on their credit cards, opting for the zero interest over the traditional credit card with interest. 

In the U.S., there is a lot of uncertainty about how these companies will be regulated. The reality, however, is that the current administration has a commitment to fair lending and equity. There are many eyes on the industry where some companies utilize new technologies to determine who they will extend credit to. For some regulators, there is a concern that these new technologies can result in unfair lending practices. Across the pond in the U.K., it appears that the Financial Conduct Authority (FCA) will be soon introducing new regulations, and Australia has recently released its Code of Practice - but they seem to imply that the Code does not supersede upcoming regulatory requirements. 

The Bottom Line

The Bottom Line is that worldwide, this industry seems to be in its infancy as it applies to regulation. Here at PerformLine, we've supported many companies in the BNPL or POS lending space as they launched and expanded their marketing compliance programs. Our technology and extensive library of proprietary rulebooks are the backbone for leading enterprise compliance programs. We are keeping our eyes and ears on developments for our existing and future BNPL clients to ensure that you are ready for whatever changes may come.

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