www.paymentsdive.com Open in urlscan Pro
2606:4700:4400::6812:2331  Public Scan

Form analysis
0 forms found in the DOM

Text Content

Skip to main content
 * 
 * 
 * 
 * 

   
 * Reading Now Holiday shoppers spent $16.6B online using BNPL: report By:
   Tatiana Walk-Morris
 * Reading Now NY governor pursues BNPL regulation By: Caitlin Mullen
 * Reading Now Demystifying buy now pay later By: Bread Financial
 * Reading Now Senators prod CFPB on BNPL oversight By: Lynne Marek
 * Reading Now BNPL companies face grim outlook, Moody’s says By: Lynne Marek
 * Reading Now Breaking down buy now, pay later By: Caitlin Mullen



Trendline


BUY NOW-PAY LATER PAYMENTS PROLIFERATE


Tanaonte via Getty Images

NOTE FROM THE EDITOR

The rising popularity of buy now, pay later financing services is attracting an
ever-increasing number of companies to the market, but it’s also attracting
regulators’ scrutiny.

BNPL will account for about $438 billion, or 5.3%, of the global e-commerce
transaction value by 2025, up from 2.9%, or $157 billion in 2021, according to a
report from payments processor Fidelity National Information Services. That’s
thanks largely to strong demand in key markets such as North America and Europe.

What started as a digital payment option mainly for young consumers buying
fashion clothing and accessories is now extending to healthcare, legal and other
services.

Big companies, from Afterpay to Affirm, that carved out the BNPL niche have
posted losses, but that hasn’t stopped more enterprises from getting into the
act and offering new takes on the tool. Tech juggernaut Apple has entered the
ring and that’s sure to increase competition in the arena with its Apple wallet
version of the offering.

Nonetheless, critics have warned that BNPL may allow consumers to take on more
debt than they can afford. Regulators are paying attention. Last year, the
Consumer Financial Protection Bureau began an inquiry into the practices of the
biggest players. And governments in other countries are already raising new
guardrails.

Recent economic headwinds, from inflation to higher interest rates, could also
take a toll on BNPL providers and their customers, testing the relatively young
industry like never before in the coming months.

 * Reading Now Holiday shoppers spent $16.6B online using BNPL: report By:
   Tatiana Walk-Morris
   
 * Reading Now NY governor pursues BNPL regulation By: Caitlin Mullen
   
 * Sponsored Demystifying buy now pay later Sponsored content by Bread Financial
   
 * Reading Now Senators prod CFPB on BNPL oversight By: Lynne Marek
   
 * Reading Now BNPL companies face grim outlook, Moody’s says By: Lynne Marek
   
 * Reading Now Breaking down buy now, pay later By: Caitlin Mullen
   




HOLIDAY SHOPPERS SPENT $16.6B ONLINE USING BNPL: REPORT

BNPL usage hit an all-time high during the season, with Cyber Monday as the
largest day on record for the payment method, according to Adobe.

By: Tatiana Walk-Morris • Published Jan. 4, 2024


DIVE BRIEF:

 * Setting a “new record for e-commerce,” online consumer spending between Nov.
   1 and Dec. 31 rose 4.9% year over year to $222.1 billion, according to an
   analysis from Adobe Analytics.
 * Consumer spending was driven in part by discounts that “hit record highs”
   during the season across categories including electronics, toys and apparel. 
 * Consumers spent $16.6 billion online using buy now, pay later services over
   the holiday season, a 14% jump from last year and an all-time high, per Adobe
   Analytics. Throughout 2023, consumers spent $75 billion online via BNPL
   payment platforms, up 14.3% from 2022.


DIVE INSIGHT:

Adobe’s online holiday shopping projection was nearly spot on. In its October
forecast for the 2023 holiday sales figures, Adobe Analytics predicted that
e-commerce sales between Nov. 1 and Dec. 31 would reach $221.8 billion, a 4.8%
increase compared to 2022.

Online consumer spending increased 6% year over year in November to $123.5
billion, driven in large part by the $38 billion spent online between
Thanksgiving and Cyber Monday. The following month, shoppers drove a 3.7%
year-over-year bump in online spending to $98.6 billion, according to Adobe.

While the overall holiday season drove growth in buy now, pay later sales, Adobe
found that Cyber Monday BNPL purchases spiked 42.5% from last year to $940
million, marking the biggest day on record for BNPL purchases. Throughout
November, buy now, pay later transactions increased 17.5% from 2022 to $9.2
billion, making it the biggest month on record for the payment method.

The rise in 2023 BNPL sales signals a continuing trend of consumers turning to
the installment payment method to finance their holiday purchases. 

“In an uncertain demand environment, retailers leaned on discounting and
flexible payment methods to entice shoppers this holiday season,” Vivek Pandya,
lead analyst at Adobe Digital Insights, said in a statement. “The strategy was
effective, driving record spend online during big days like Cyber Monday and
Black Friday, and a record 11 days that surpassed $4 billion in daily spend this
season.” 

With more consumers turning to installment payment plans to fund their holiday
shopping, BNPL providers have seen a boost in orders. Klarna said that U.S.
shoppers placed 29.5% more orders on Black Friday this year compared to last
year.

Adobe also accurately forecast the rise in mobile shopping during this year’s
holiday season. More than half (51.1%) of online shoppers transacted via
smartphones this holiday season, an increase from 47% a year ago. Consumers
spent the most via mobile on Christmas Day, driving 63% of online sales, Adobe
found.

Article top image credit: NoSystem images via Getty Images



NY GOVERNOR PURSUES BNPL REGULATION

New York Gov. Kathy Hochul is seeking to require buy now, pay later providers to
obtain a license to operate in the state, in addition to other potential
regulations for the industry.

By: Caitlin Mullen • Published Jan. 3, 2024


DIVE BRIEF:

 * New York Gov. Kathy Hochul announced Tuesday she’s pursuing buy now, pay
   later-related legislation that would require BNPL providers to obtain a
   license to operate in the state.
 * The bill would also permit the state’s financial services department to
   propose and issue regulations for the industry, according to a slate of
   proposals from the Democratic governor’s office. In New York, a governor can
   introduce legislation by way of the executive budget.
 * The legislation and potential regulations aim to “establish strong industry
   protections around disclosure requirements, dispute resolution and credit
   reporting standards, late fee limits, consumer data privacy, and guidelines
   to curtail dark patterns and debt accumulation and overextension,” the
   governor’s office said in Tuesday’s new release.


DIVE INSIGHT:

The BNPL-related legislative proposal is part of Hochul’s agenda aimed at
strengthening consumer protections. Current consumer law covers deceptive
business practices, but New York is one of just eight states whose law doesn’t
protect against unfair and abusive practices, the governor’s office noted in the
release.

A spokesperson for Hochul’s office said specific legislative language will be
unveiled as part of the governor’s executive budget presentation later this
month. 

As consumers increasingly tap BNPL loans for everyday and larger purchases,
Hochul is directing the state’s department of financial services “to put
stronger regulatory guardrails around the buy now, pay later loan industry,” she
said during a speech Tuesday.

The governor’s announcement seems aligned with other government actions last
month related to BNPL, including the Office of the Comptroller of the Currency’s
guidance for banks related to BNPL lending, said Eamonn Moran, senior counsel at
law firm Norton Rose Fulbright specializing in consumer financial services. The
same is true of a letter from a group of Democratic senators to Consumer
Financial Protection Bureau Director Rohit Chopra urging BNPL oversight, Moran
said in an interview.

Where California already requires providers to obtain licenses to issue loans,
New York appears to be taking a dual-pronged approach by focusing on licensing
and regulation, said Moran, a former counsel at the CFPB’s Office of
Regulations. Additionally, the BNPL-related concerns mentioned by Hochul’s
office seem to mirror those the CFPB has mentioned in past reports, he said.

At the federal level, the specter of regulation has loomed over the BNPL
industry since the CFPB launched an inquiry into the five biggest players
— Affirm, Afterpay, Klarna, PayPal and Zip — in December 2021. The CFPB said in
September 2022 that it was considering “interpretive guidance” or rules for the
industry. Moran expects that guidance might land this year. 

Max Levchin, the CEO of San Francisco-based Affirm, in November acknowledged
oversight from the CFPB, saying supervision “levels the playing field” in the
BNPL arena. Affirm already holds a number of licenses in states that require
them from BNPL operators, including lending and money transmitter licenses, a
company spokesperson told Payments Dive Wednesday. 

The spokesperson reiterated that Affirm’s “top priority is empowering consumers
by providing a safe, honest, and responsible way to pay over time with no late
or hidden fees. This includes underwriting every transaction before extending
credit, giving consumers control over their privacy choices, and providing
consistent and transparent disclosures at checkout.”

A spokesperson for Sweden-based Klarna declined to comment. A spokesperson for
Block-owned Afterpay didn’t immediately respond to a request for comment.

Article top image credit: Michael M. Santiago via Getty Images
Sponsored


DEMYSTIFYING BUY NOW PAY LATER


Sponsored content
By Bread Financial

YOUR CUSTOMERS WANT OPTIONS. HOW DO YOU KNOW YOU HAVE THE RIGHT ONES?

Having the right financing and payment tools available can be the difference
between closing the sale and a customer saying they’ll “come back later.” In
fact, our research shows that 93% of BNPL users say it’s important for retailers
to accept payment options beyond cash, bank-branded credit cards, and debit
cards.

To help us better understand what motivates consumers to choose buy now pay
later over other payment types, we conducted a survey of 1,077 Bread Pay users,
representing $1.49 million in merchant retail sales.

Through this research we were able to identify keys to using BNPL to drive sales
and loyalty back to your business. Read on to find out how you can unlock these
for yourself.

1. A WELL-KNOWN SECRET: BREAD PAY HELPS YOU CLOSE THE SALE AND INCREASES TICKET
SIZE

The research shows that Bread Pay merchants could have lost over $800,000 in
customer sales had Bread Pay not been offered. A full 26% of Bread Pay users
said they would have abandoned the purchase without Bread Pay and another 30%
said they would have deferred the purchase until they had saved up enough money
to complete their purchase. 55% of Bread Pay users say they have bought more
items or spent more in one transaction because BNPL made the purchase more
affordable.

2. BREAD PAY UNCOVERS NEW CUSTOMERS WHO AREN’T SOLD ON STORE CARDS

According to our research, Bread Pay can help you attract new customers who may
not be interested in store credit cards. 53% of Bread Pay users said they
shopped at a retailer specifically because the retailer offered BNPL. Only 4% of
Bread Pay users say they would have used a store credit card if one was
available to them.

WHY BREAD PAY USERS CHOSE BUY NOW, PAY LATER:

 * 48% convenience
 * 59% desire to finance purchase
 * 54% payments offer low or no interest

3. MERCHANTS NEED PAYMENT OPTIONS THAT SOLVE FOR BOTH THEIR NEEDS AND CUSTOMER
EXPECTATIONS

With potential sales at risk, it is important that merchants have payment
options that meet their customers’ needs.

CUSTOMERS EXPECT A CREDIT LINE THAT MEETS OR EXCEEDS THE PURCHASE PRICE

Our research shows that a credit line that meets or exceeds the purchase price
is an important factor to 91% of customers. In fact, 41% of customers said they
would abandon the purchase completely if the line of credit offered wasn’t
enough to cover the purchase price.

WHEN THE CREDIT LINE DOESN’T MEET THEIR NEEDS:

 * 41% would abandon the purchase altogether
 * 24% I would pay for it another way
 * 30% I would put what I could on BNPL and pay the rest another way
 * 5% Other

BREAD PAY INCREASES LOYALTY TO YOUR BUSINESS

Nothing matters more to you than taking care of your customers. As a payments
provider, Bread Pay understands the importance of helping you get the sale over
the finish line and driving loyalty back to your brand.

HELPING MERCHANTS DEEPEN CUSTOMER RELATIONSHIPS:

 * 97% of Bread Pay users would consider using it again
 * 7 of 10 Bread Pay users say the service makes them more likely to shop with
   the retailer again

KEY TAKEAWAYS FOR MERCHANTS:

Not all buy now, pay later solutions are the same. Bread Pay can help you take
the guesswork out of balancing your business’ needs and your customers’
expectations.

 1. Bread Pay drives incremental sales for merchants: Of the $1.49 million in
    products sold through Bread Pay, over $800,000 could’ve been lost without it
 2. Bread Pay helps you attract customers: 53% of Bread Pay users said they
    shopped the retailer specifically because the retailer offered BNPL
 3. Bread Pay puts you in control: Higher credit lines and low/no-interest rate
    plans drive loyalty back to your business

Discover key insights in our e-Book, Demystifying buy now, pay later. Download
here.

Research methodology: Sample of 1,077 Bread Pay users participated in this study
conducted by Bread Financial through an online quantitative survey that took
place March 3-17, 2023.

Article top image credit: Photographer unknown via Getty Images



SENATORS PROD CFPB ON BNPL OVERSIGHT

Three Democratic lawmakers worried about financially vulnerable consumers urged
the Consumer Financial Protection Bureau to keep an eye on buy now, pay later
offerings.

By: Lynne Marek • Published Dec. 19, 2023

Democratic senators urged the Consumer Financial Protection Bureau this week to
be vigilant in monitoring buy now, pay later offerings, especially during the
holidays, so it can curb tools that “prey upon consumers.”

Sen. Sherrod Brown, who is the chairman of the Senate Committee on Banking,
Housing and Urban Affairs, along with Sens. Raphael Warnock of Georgia and John
Fetterman of Pennsylvania made the plea in a letter Monday to CFPB Director
Rohit Chopra.

“We urge you to continue focusing on this increasingly popular form of consumer
credit and use the full range of your authority to ensure that it is not used to
prey upon consumers,” the Monday letter said.

The letter followed a Banking committee CFPB oversight hearing last month in
which Chopra said he would closely watch the increasingly popular payments tool.
When consumers tap one of the many BNPL offerings available, they’re able to
take possession of a good or use a service with only a down payment and a
promise to pay the rest of the price over a period of time, sometimes
interest-free and usually over four to six weeks.

The installment payment method has increased in availability in the U.S. over
the past five years, with a surge of interest during the COVID-19 pandemic when
many online shoppers first encountered the option. The payment method, offered
by companies that include Klarna, Affirm, PayPal and Afterpay, was initially
mainly available digitally, but is now increasingly offered in stores as well.

While BNPL has proven helpful to some consumers seeking to avoid interest
payments and credit history hurdles, it has also shown signs of potentially
encouraging risky debt profiles.

The CFPB has collected information on the new payment BNPL phenomenon and its
purveyors, suggesting it may seek to further regulate the nascent industry.
Nonetheless, it has yet to issue any particular guidance or guardrails directed
specifically at BNPL providers. Nonetheless, some companies are bracing for
increased scrutiny by the agency.

The senators said they were writing their letter now in light of the year-end
holiday shopping season, when some consumers load up on debt to pay for gifts.
They noted that BNPL is typically used for online purchases ranging from $50 to
$1,000.

“BNPL may be structured to encourage consumers to purchase more and take on more
debt,” said the letter, which was noted in a press release from the senators.
“Unfortunately, consumers can overextend their finances in a short period of
time, making the BNPL debt unmanageable.”

They noted that consumer use of BNPL payment options soared during the Black
Friday and Cyber Monday shopping period, with $8.3 billion spent online using
those tools, a 17% jump over last year, according to the letter.

“The increased use of BNPL and the debt burden being carried by the typical
holiday BNPL customer make it all the more important that consumers are
protected during the holiday season, whether they finance their holiday shopping
using a credit card or BNPL loan,” the letter said.

The letter also pointed out that BNPL is often used by some of the most
financially vulnerable U.S. consumers, including those who have low incomes,
significant debt and low credit scores.

“The CFPB must ensure that BNPL does not become a method to take advantage of
struggling consumers,” the letter concluded.

Article top image credit: Permission granted by PayPal Spokesman Joseph Gallo


BNPL COMPANIES FACE GRIM OUTLOOK, MOODY’S SAYS

Fierce competition, persistent losses and regulatory constraints are likely to
push some players out of the buy now, pay later market, Moody’s predicted.

By: Lynne Marek • Published Nov. 13, 2023

Intense competition, rising regulation, challenging economic times and
persistent losses led credit rating agency Moody’s Investors Service to paint a
dire outlook for buy now, pay later companies in a report last week.

In addition, dwindling investor interest in the companies and more expensive
funding for their lending services have helped sour prospects, according to the
Nov. 8 report on the worldwide industry. To date, the difficulties have resulted
in at least five years of industry losses, paid for by venture capitalists
backing the businesses.

“If losses are not contained this year and new equity injections are not
secured, many BNPL providers may deplete their equity over the next few years,”
the report said.

Moody’s isn’t optimistic, predicting “few BNPL companies will remain
independent.” “Some may be acquired, others may cease operations if their
products cannot remain competitive in the market, or if they are unable to
navigate the impending wave of regulation,” the report said, noting an
Australian BNPL company, Openpay, shut down in February.

The biggest company globally, based on users, is the Swedish BNPL pioneer
Klarna, with 150 million users, which dwarfs the Australian business Afterpay,
now owned by San Francisco-based Block, with 16 million users, and Affirm, also
based in San Francisco, with 14 million users, according to user data provided
in the report.

BNPL benefited from a surge in online consumer demand for installment financing
services during the pandemic, and more recently, some consumers are turning to
it in the face of tough economic conditions. The general expansion of e-commerce
will also help continue to lift BNPL, the report said.

Buy now, pay later is point-of-sale financing that lets consumers buy an item
and take possession of it while paying for it over time, typically six weeks, in
some cases without paying interest on the loan. To increase the potential for
profits, some BNPL companies have started offering more interest-bearing loans
and other services.

Still, the momentum of BNPL growth may not be sufficient to overcome a multitude
of other challenges, the ratings agency said.

Specifically, competition in the BNPL arena is intense, with low barriers to
entry allowing a slew of startups to enter the market — resulting in some 200
companies calling themselves BNPL providers last year, according to the Moody’s
report.

Nonetheless, the bigger threat comes from large banks jumping into the ring.
National Australia Bank, NatWest, Santander Bank, Citibank and JPMorgan Chase
are among the banks offering BNPL-type services now, the Moody’s report said.
Those financial institutions also have an advantage over BNPL companies in that
their credit card networks have extensive reach and may offer services to
merchants at lower rates, not to mention their more tested credit risk
management, the report noted. 

In addition, tech giant Apple this year rolled out its Apple Pay Later service
in another move that boosted competition. Apple’s offering, backed by bank
Goldman Sachs and card network Mastercard, has immediate extensive reach through
its dominant position in the digital wallet market, Moody’s said. 

Aside from competition, another obstacle for the industry is rising regulation
worldwide. Moody’s enumerated regulatory moves to rein in BNPL in the U.S., the
U.K., Sweden, Singapore and Australia as well as by the European Union. With
regulators seeking to protect consumers and ensure all BNPL financing abides by
the same standards, profits may shrink and compliance costs will likely rise,
Moody’s predicted.

“To survive, BNPL firms must slash costs or increase revenues while maintaining
volume growth and market shares,” Moody’s concluded. If they cannot, rising
competition from incumbent banks and large tech companies will likely push many
from the market.”

Article top image credit: Khaosai Wongnatthakan via Getty Images



BREAKING DOWN BUY NOW, PAY LATER

After its pandemic-era growth spurt, buy now, pay later has gone mainstream in
consumer payments. But changing economic conditions are forcing the installment
trend to evolve.

By: Caitlin Mullen • Published Nov. 3, 2023

Everyone’s buying now and paying later. At least that’s what the prevalence of
BNPL buttons on online checkout pages would lead you to believe.

Buy now, pay later is point-of-sale financing that allows consumers to make a
purchase and pay for an item or service over a set period of time, often without
interest. It’s exploded in the past few years, appealing to consumers seeking
quick access to credit or those turned off by credit cards. It’s also attractive
to merchants — from retailers to restaurants — gunning to increase a shopper’s
basket size or close a sale. 

The payment trend first gained traction in Europe and Australia about a decade
ago. In the U.S., BNPL took off with the rise of e-commerce during the COVID-19
pandemic. Consumers stuck at home and flush with cash tried the financing tool
to buy clothes or home goods. 

More recently, soaring inflation and high interest rates have inspired some
shoppers to tap BNPL for everyday purchases, to spread out payments and avoid
interest charges.

Using BNPL at checkout tends to be a seamless process for shoppers. That’s
helped fuel its growth, especially with digital native generations that expect
such experiences. “Being easy to use does matter when it comes to payment
options,” said Sheridan Trent, director of market intelligence at The
Strawhecker Group.


Sheridan Trent
Permission granted by Sheridan Trent
 

Initially, BNPL gathered momentum with millennial and Gen Z consumers, many of
whom are turned off by credit cards, then it began drawing in other consumers,
too. Nearly one-fifth of consumers have used BNPL during the past year, Federal
Reserve Bank of New York researchers said in September. 


HOW IT WORKS

BNPL is essentially the opposite of layaway, where buyers could only take home
an item once it was paid off. BNPL enables shoppers to obtain an item right
away, and then continue paying it off in the weeks or months that follow. 

Consumers can access BNPL options through online checkout integrations on a
merchant’s website or through BNPL providers’ apps or cards. Merchants are
willing to pay higher fees for BNPL services than they would for credit card
acceptance on the belief that customers will be enticed to spend more and
complete the sale.

When a shopper chooses a BNPL company as their payment method at the point of
sale, either online or in-store, the shopper gives the BNPL provider personal
information such as address, phone number, date of birth or Social Security
number. Then, BNPL companies typically perform a digital soft credit check
within seconds before approving or denying a shopper for an installment plan.

The version of BNPL that’s most widely marketed by providers is an
interest-free, pay-in-4 plan. Those offers allow consumers to make an initial
payment when they buy an item, followed by three more payments, typically spread
over six weeks. 

For a $100 purchase, for example, a shopper would make an initial payment of
$25, followed by three more payments of $25, at two weeks, four weeks and six
weeks from the point of sale. Consumers make those payments with debit or credit
cards, or sometimes through an auto-pay function tied to their bank account. 

While BNPL companies play up their no-fee offerings, some providers do charge
interest fees in certain instances, and some may also charge late fees. 

For instance, San Francisco-based Affirm does far more interest-bearing,
longer-term installment loan volume than it does shorter-term, fee-free lending.
And its interest rate on the former could be as high as 36%. Pay-in-4 loans made
up 19% of Affirm’s gross merchandise volume for the fiscal year ended June 30,
according to the company’s annual filing with the Securities and Exchange
Commission.


BIG PLAYERS IN THE MARKET

BNPL’s explosion has drawn a number of competitors from across the world to the
market, all eager to grab their share of the pie. That includes pure-play BNPL
providers such as Affirm as well as banks, card networks and Cupertino,
California tech giant Apple. 

Afterpay, founded in Sydney and now owned by Block, was the biggest player in
the U.S. market for the second quarter, based on Bank of America
Securities data for monthly active users, though the data didn’t include
PayPal. Globally, Stockholm-based Klarna was the BNPL leader by that measure for
the period. 

Also jockeying for a piece of the action are Affirm; San Jose, California-based
PayPal; Minneapolis-based Sezzle; and Sydney-based Zip. And some smaller
competitors have sought to specialize in certain verticals, such as Uplift in
the travel arena.

KLARNA LEADS A PACK OF BNPL COMPETITORS

Average monthly active users at BNPL companies in the second quarter,
domestically and globally

In the U.S., Klarna was second to Afterpay for the second quarter, averaging
3.31 million monthly active users, while Affirm averaged 3.26 million, according
to the July BofA report. Monthly active users were those who opened the app at
least once during the month.

PayPal declined to provide second-quarter figures, but as of the first
quarter, 32 million customers had used the company’s BNPL service since its
inception in 2020, a spokesperson said.

Meanwhile, Visa, Mastercard and American Express and banks like JPMorgan Chase
and Citi typically offer existing cardholders the option to break a purchase
into specific payments. 

Apple launched its installment lending service, Apple Pay Later, this year – a
move that has the potential to shake up a fast-changing market. Trent expects
Apple is already gaining market share because the company is intent on making
its service easy to use within its digital wallet. 

Amid an intensely competitive environment, BNPL providers are still proving
themselves to investors. They’ve largely posted losses in the past, and are
under pressure from investors to post profits.

Consultants and professors have said that could be an uphill battle amid current
market conditions. BNPL company job cuts have been widespread as the focus has
shifted from growth to profits. Klarna posted a $1 billion loss for 2022, while
rival Affirm reported a loss of $707.4 million in fiscal year 2022.


WHAT’S NEXT? 

BNPL is here to stay, but it’s likely to become a more regulated, consolidated
industry than it is now, said Ed deHaan, a professor at the Stanford Graduate
School of Business. “I think we’ll see the weaker firms die out, other ones get
consolidated and some version of the product will certainly emerge and continue
to be popular,” deHaan said.

Consolidation has already begun. San Francisco-based Block, formerly known as
Square, agreed to acquire Afterpay for $29 billion in 2021. Zip bought QuadPay
in 2020, and made an attempt to buy Sezzle last year, but later abandoned the
deal.

As far as regulation, the Truth in Lending Act applies to the longer-term,
interest-bearing BNPL loans, but it doesn’t cover pay-in-4 loans because it only
applies to loans with more than four installments or those that add finance
charges.

From a regulatory perspective, “it’s kind of a Frankenstein product,” said
Michael Guerrero, a partner at law firm Ballard Spahr.

As the Consumer Financial Protection Bureau has taken notice of BNPL, it has
expressed concerns about BNPL users taking on too much debt and BNPL providers
engaging in data harvesting. 

In addition, the federal agency has urged credit bureaus to take a standardized
approach to BNPL, but most of the installment providers still aren’t reporting
their loan information to the credit bureaus. Guerrero expects the agency to
clamp down on that BNPL-related issue. 

In pursuit of profits, many BNPL providers have expanded the services they
offer, including branching into areas such as marketing or shopping assistance.
They’ve also introduced new products like debit cards and pushed their services
further into brick-and-mortar commerce.

To grow their share of consumer spending, the BNPL providers are also trying to
diversify their customer set, partly by courting older, more affluent consumers.

Given higher interest rates and increased costs to fund loans, BNPL companies
may increasingly make interest-bearing loans more of a standard in the industry
because they’re more profitable, Guerrero said.

Article top image credit: Sviatlana Zyhmantovich via Getty Images





THE LATEST IN BUY NOW, PAY LATER PAYMENTS

The rising popularity of buy now-pay later financing services is attracting an
ever-increasing number of companies to the market, but it’s also attracting
regulators’ scrutiny. What started as a digital payment option mainly for young
consumers buying fashion clothing and accessories is now extending to
healthcare, legal and other services.

INCLUDED IN THIS TRENDLINE

 * Holiday shoppers spent $16.6B online using BNPL: report
 * NY governor pursues BNPL regulation
 * Senators prod CFPB on BNPL oversight

Our Trendlines go deep on the biggest trends. These special reports, produced by
our team of award-winning journalists, help business leaders understand how
their industries are changing.
Davide Savenije Editor-in-Chief at Industry Dive.