Buy Now, Pay Later (BNPL) has grown to an industry worth hundreds of billions of dollars. Companies such as AfterPay, Block, Klarna, PayPal, and recently Apple allow customers around the world to buy items while paying only a small upfront deposit. Most of the cost is then paid in instalments, often without additional interest payments. According to World pay, BNPL in 2020 accounted for around 2.1% ($97 billion) of all global e-commerce transactions, and this is predicted to double in 2022.
Our webinar explored different market perspectives, including Europe, Asia, Africa, and Australia. It explored the benefits BNPL can bring to customers, retailers, and BNPL providers, and concerns around indebtedness, regulation, and consumer protection.
BNPL is an excellent example of embedded finance and partnerships, being available at the point of purchase through retailers, and is also bringing innovation and disruption to the credit industry. It brings important benefits to both consumers and retailers. For consumers, it gives greater choice of how to handle their cash flow, more options of products to use, clear installment plans without paying interest, and they get the product they want immediately. For merchants it helps them manage inventory, manage cashflow, bring in new customers, increases customer loyalty and amounts spent. BNPL has existed often informally, by digitising it has the potential to allow customers to build a credit history and opens access to other products. The digitisation also creates a history useful to address anti-money laundering.
Despite having so many advantages, there are key concerns around consumer protection, regulation, and indebtedness. One key concern is that consumers do not see BNPL as a credit product. We need to drive the ethical use of BNPL and ensure appropriate regulation is in place. Some ways we can help the ethical use include:
Have credit checks and scaling of loan amount given from low and increasing when repaid
• Consider the customer and product and how they can repay and when.
– For the individual tailor time periods for repayment dependent on the type and cost of goods purchased.
– For merchants, consider their inventory turn-over, so repayments are made once goods are sold.
• Use or adapt existing regulations that are relevant; over-regulation can stifle innovation.
• Develop an industry code of conduct, applicable to BNPL providers and retailers.
• Use consumer groups to guide the industry towards ethical behaviour, for example, in Australia, BNPL cannot be used in gambling or to purchase weapons.
• Ensure BNPL is helping consumers build their credit history and access to other financial services.
These help ensure instalments are made timely, ensuring the business model remains sustainable and does not become a risk to the individual consumer through indebtedness or the entire financial system. Understanding the consumer and the use case, combined with the business model, are key to getting the balance right. BNPL also offers the opportunity to provide ‘nudges’ to allow consumers to be in control of their finances and make informed decisions. By operating wisely, we can minimise harm to consumers, give them choice and flexibility in their financial lives, and ensure the product’s sustainability.
Buy Now, Pay Later (BNPL): Enhancing or hindering financial inclusion was the first webinar as part of our collaboration and partnership with GIFT Forum. You can view the Memorandum of Understanding Signing Ceremony between the Alliance of Digital Finance Associations & Global Impact Fintech Forum here.