BNPL: Defining the BNPL Space [Part 4]

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 four of this BNPL blog series, experts try and answer what is their definition of BNPL is and what companies should be thinking about if they are developing a BNPL product.

Four Payments, Six Weeks, No Interest

When asked to define what he thinks is the definition of a BNPL product, Rick Cunningham, Senior Vice President of Strategy and Business Development at Alliance Data, offers:

“The way that I define BNPL, the way I see it as a split ticket at Bread, is four payments over six weeks with a zero percent interest to the consumer, and it’s operated under some different regulatory scrutiny. So that’s what I call a BNPL, but I get why some people call longer-term installment loans BNPL, because you are buying now and you are paying later. But the way we talk about it, installment loans are more the big-ticket, longer-term split pay, whereas pay in four or BNPL, to me, is separate. I think we co-mingle both pretty routinely which is not a bad thing, but I am a stickler on this definition.”

Consumer vs. Regulatory Standpoint

For Mylee Vigness’ answer, Head of Innovation and Growth at Snap Finance, says:

“My answer is different whether you ask me from a consumer or from a regulatory compliance standpoint. From a consumer, it should all blend into what exactly Rick was just saying that they are having that flexibility of paying. To the consumer you have three methods of paying; it’s pay before, like a prepaid vehicle before you make the purchase, paying at the same time with cash or some type of vehicle, or paying after you actually make the transaction. In the consumer’s mind, all the BNPL methods have the same end goal.  Consumers should be able to have that flexibility. On their end, BNPL shouldn’t be broken down into what is the true definition of BNPL versus installment financing.

From a compliance or a regulatory standpoint, my answer differs because they are different types, depending on what the product is and what rules they have to adhere to. As we talk about a retail installment contract versus an installment loan it gets detailed but it needs to be looked at through a slightly different lens. A heads-up for us in the industry, is making sure that we are aware of what BNPL product falls in each one of those regulatory lenses. So very different answers depending on the lens that you are looking through.”

Consumers Reality Credit Check

Chris Bixby, Vice President of Growth at Sezzle, offers advice on why consumer education is important :

“I agree more with Rick and the reason for that is BNPL as a category and as a product doesn’t go through any sort of underwriting or soft credit checks. And so from a consumer standpoint, it is a very different product than the normal installment loans. Other competitors get in trouble when the product delineation is not clear for the consumer. Those consumers believe are signing up for a product that may be an installment loan with no credit check. When in reality it’s a true credit product, it’s a hard credit check it hits their report and that is where we have seen the consumer complaints come from. And so I do think there is an education on both the consumer and regulatory side that the idea of paying overtime is an overarching idea, the idea of being able to split a payment up. I think budgeting and the behavior of consumers are going to be the same whether it’s BNPL or long-term installments, which is one of the reasons consumers are going to be using these split-payment products. A credit piece or the potentially hard credit check and reporting is something that the consumer should know about as part of this BNPL education project.

And I will just add that Sezzle also offers installment loans and we do a credit check on those applications, so we are wrestling with this education internally. This is an ongoing conversation because the benefit is BNPL, but the nuances of those credit products are different. So we are always having the conversation internally about how we message it and how we work with our internal compliance team on the way to go to market.”

Bridging the Gap

John Zanzarella, Vice President of Sales at PerformLine, adds in:

“What Mylee said is spot on, the way you market to consumers the product has to be cohesive with your compliance department, understanding what your product is and how it is going to be looked at by regulators helps with this process. A lot of what we at PerformLine do is work with companies, like Snap Finance, to bridge that gap between compliance oversight of your merchants and how they are communicating with customers. Also monitoring the overall brand message from the marketing department and what the benefits to the consumers are at the end of this transaction to help market the product.”

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