With the winter holidays behind, one would expect BNPL to be flourishing. However, recent events suggest otherwise. Regulators are swarming, fintechs are making missteps, and the standalone model will not displace traditional credit card lending.
Regulatory Oversite
The CFPB’s interest in BNPL is no surprise, nor is the subject of late fees in the UK, as Payment Source reports.
Three buy now/pay later lenders that operate in the U.K. have refunded late-fee charges to consumers following a review by the country’s Financial Conduct Authority, which is seeking to expand its jurisdiction over the fast-growing and unregulated domestic BNPL industry.
The moves came after the U.K.’s financial regulator ordered Klarna, Openpay, Clearpay, and Laybuy to clarify terms in their contracts to protect consumers, the FCA said Monday.
The U.K. government plans to change its laws so that BNPL loans will officially fall under the FCA’s authority, according to the regulator, but no timetable has been set for that change.
“We do not yet have powers to regulate these firms, but we do have powers to review the terms and conditions of consumer contracts for fairness,” said Sheldon Mills, the FCA’s executive director of consumers and competition, said in a press release.
Square Gets a Bargain (maybe)
According to Financial Times:
When the Jack Dorsey-led payments company Square announced it was buying Afterpay, a leading provider of BNPL loans, for A$39bn last August, it was pitched as the largest ever takeover in Australian history.
But the acquisition was paid for in Square shares. By the time the deal was completed this month, the value of the offer for Afterpay had shrunk to around A$22bn as its new parent’s stock had more than halved since the takeover deal was struck. For Square, which has since changed its name to Block, paying in shares rather than the agreed amount in cash to expand in BNPL has paid off.
Whoops, at Affirm
The early release came after a since-deleted tweet was sent from Affirm’s official Twitter account at around 1:30 p.m. ET on Thursday. The tweet announced details of its financial performance, including that its sales rose by 77%.
The tweet suggested that Affirm would beat revenue expectations. Analysts polled by Refinitiv had expected a 61% rise. The stock was briefly up as much as 10% on that tweet.
Affirm said in another tweet later Thursday that its inadvertent release of financial results was due to human error.
Affirm went public in January 2021, and its share price has fallen about 64% from its peak last November.
And life at Peloton, the firm’s large client, does not look too healthy either.
Back in the stodgy banking world, those safety and soundness standards don’t seem so bad after all. And here are the nine categories of risk that the OCC defines for banks, which won’t hurt mentioning: Credit, Interest Rate, Liquidity, Price, Foreign Exchange, Transaction, Compliance, Strategic, and Reputation risk. At least six come into play with fintechs and BNPL today.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
