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BNPL is picking up more momentum

Buy Now Pay Later

BNPL is picking up more momentum, making regulation even more urgent.

Set against uncertain economic times and consumer belt-tightening, it is no surprise that Buy Now Pay Later (BNPL) adoption is expanding steadily, with forecasts suggesting as much as 18% growth between now and 2028. 

Consumers like the flexibility of BNPL, allowing them to purchase items and spread the cost to make it more easily affordable. This is why it has found such favour with Gen Z and Gen Y consumers who are less likely to have credit cards, and even among those that do have a credit card but prefer to use BNPL as an alternative way to ‘finance’ their more expensive purchases. 

Retailers have been quick to catch on, offering BNPL in-store and online knowing that its simplicity is a sure-fire way to attract new shoppers, improve customer relations and boost sales. Evidence suggests there is a clear correlation between BNPL and order values. Recent research found that 57% of UK retailers offering the payment mechanism saw an increase in basket conversion and, compared to card payments, orders using BNPL could be between 20 and 30% higher in value.  

Frasers Group

It was not a surprise, then, to see earlier this month that Mike Ashley’s Frasers Group is taking the BNPL bandwagon a step further by rolling out its own Buy Now Pay Later scheme. According to reports,  it will allow shoppers to split and defer payments, or arrange a loan of up to £2000 that can be spent with the Frasers Group stores. These include Sports Direct, House of Fraser, Jack Wills and Sofa.com.

This is an interesting development and given that Frasers has access to a Financial Conduct Authority (FCA) regulated firm to service loans, and a stake in the fintech company Tymit to facilitate payments, it is well placed to make a success of it. Of course it will also need to use the services of a specialist company to provide credit information, unless it is able to use its own customer data to ascertain risk. 

No doubt the Frasers Group initiative is inspiring other large retailers to follow suit if they can find the necessary components to fully service their own BNPL schemes. The bigger their customer base, the more likely they are to be able to cut the costs associated with paying commission to the other third-party BNPL services such as Klarna and ClearPay. What they will lose out on are those customers that are steered towards them by the increasingly high profile BNPL brands, and they should also be aware that they will need a way to process payments securely, such as through a reputable PSP like Computop. 

Debt accumulation

The incentive for big retail groups is clear, and by using their own IFA-regulated ‘banks’ they will report to credit reference agencies so that other lenders can see if a customer is using their scheme. This transparency is fundamental to the long-term success of BNPL. One of the greatest weaknesses of it is that shoppers can easily accumulate debt. BNPL providers do not have to comply with the Consumer Credit Act and they do not fall under banking regulations currently, which means they are not obliged to share information on who is using their schemes. There is nothing to stop a customer purchasing several high ticket items simultaneously and if they are unable to make a payment on the due date, they are likely to incur a high rate of interest which may quickly escalate out of control. 

This has been ruffling feathers in parliament for some time. In June last year, the government acknowledged that while BNPL offered a helpful way to manage finances, regulations were needed to ensure people could embrace new products and services with appropriate protections in place. This meant that BNPL providers would be obliged to carry out affordability checks, they would have to amend promotions and adverts so they are fair, clear and not misleading, and lenders offering BNPL products would need to be approved by the FCA. None of this is in place yet, but legislation is expected to kick in by the middle of this year.  

In advance of the legislation, the biggest BNPL providers will need to make changes, but this can only be a good thing. The popularity of the payment method is not in question, particularly in our current economic situation, but this makes it even more important that all parties involved are committed to sharing the data that keeps their customers fully protected. 

By Ralf Gladis, CEO, Computop

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