America is infamous Progressive is lagging behind fintech regulation, which is worrisome given the number of US citizens with serious debt. As of the third quarter of 2021, US citizens owe more than $15 trillion, nearly the highest level in the country’s history.
Buy Now, Pay Later (BNPL) services offer customers access and payment flexibility, but unregulated services can unintentionally endanger people’s financial health. Some BNPL providers penalize consumers up to 25% of their purchases for late refunds. And a Credit Karma survey found that 72% of US consumers experienced a poor credit score after using BNPL’s unregulated services.
The spread of small BNPL providers that do not adhere to responsible lending best practices will slow due to new regulatory hurdles.
But the right set of rules will solve this problem and ultimately enable banks to enter the BNPL sector and become leaders.
The Consumer Financial Protection Bureau (CFPB) closely monitors consumer credit products. In a survey announced in December 2021, the biggest players Affirm, Afterpay, Klarna, PayPal and Zip were asked to provide insight into the risks and benefits of their products.
While BNPL players position themselves as a driver of financial inclusion, policy makers will find that many of these providers need to make much more strides in customer financial wellness. Regulation is the way to ensure this.
While it will take some time for regulators to come to a conclusion and put in place really tough rules, the results will be immediate.
Here’s what we expect:
The path to honest and responsible lending
With the right regulation, it will soon become clear that fair and responsible lending goes hand in hand with affordable and affordable consumer finance.
Learning the rules of the CFPB will level the playing field in the long run. Fintech has demonstrated the need for BNPL and has proven that the offering can be scaled across both stores and e-commerce sites. However, traditional lenders and banks that already offer services under reporting protocols can now thrive in the BNPL sector with the right technology partnership.
By partnering with a BNPL provider, banks can deploy flexible and responsive BNPL solutions that benefit both merchants and consumers. By offering white-label BNPL options from banks, traders can increase sales and average order value (AOV). Consumers will benefit from the rapid adoption of banks and other regulated financial institutions. In addition, leading banks and lenders often offer the most competitive loan programs.
What is the most viable way to regulate the BNPL industry?
Let’s analyze which countries are on the right track. The UK was one of the first countries in terms of regulation. But despite a Woolard Review published by the UK Financial Conduct Authority (FCA) in early 2021 explaining the urgency of regulating the BNPL industry, no new regulatory regime is expected until 2023 that would make unregulated BNPL products subject to FCA.