Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.
Data for today’s episode is provided by Mercator Advisory Group’s Viewpoint: Buy Now Pay Later Lending: The Time to Regulate is Now
Buy Now Pay Later Lending: The (Not Really) New Thing
- The buy now pay later (BNPL) space is white hot, with fintechs like Affirm going public and Alliance Data’s $450M Bread acquisition.
- Installment lending, however, is not new. Before 1977, it was the most popular form of credit and paved the way for credit cards.
- Today, consumers owe almost $1 trillion to their card lenders, while unsecured non-revolving lending totals $156 billion.
- Fintechs are flourishing in the BNPL space, accounting for 38% of the market in 2013 compared to just 5%in 2013.
- The fintech breakthrough in installment lending evolved by repackaging installment lending as “buy now pay later” and adding three features.
- The three features added by BNPL: “pay in four” months model, omnichannel access at retailer websites, and a friendly non-banker approach.
- The top four drivers for BNPL are user experience, attractive terms, lower interest, and easier credit underwriting.
The new payment option enjoys significant growth in many markets, but consumers need better protection for fair lending, pricing, and remedies.
Consumers sometimes find interest-free loans come with unanticipated fees and charges. As in every other form of consumer lending, clarity, fairness, and transparency are not optional.