Amid the digital payment markets’ opportunities to ride the Buy Now Pay Later wave are regulatory actions to prevent overspending: report
Global economic woes anticipated by some economists have spurred a commercial report on the payments landscape to predict that the number of Buy Now Pay Later (BNPL) transactions will increase from 360m this year to more than 900m globally by 2027.
The report has identified India as having potential for rapid BNPL growth, with users predicted to grow from 25m in 2022 to 116m by 2027. This is due to rising e-commerce usage and the people’s growing interest in international goods available through online retailers.
Finally, the commercial research predicts that the adoption of virtual cards, where digital-only cards are used for purchases, will increase the usage of BNPL solutions, as they only require merchants to accept card payments—overcoming previous limitations on growth.
The advancement of virtual cards allows BNPL schemes to compete with credit cards; particularly in-store, where single use BNPL cards can be used within a digital wallet to complete contactless transactions.
According to the report by Juniper Research, BNPL schemes enable consumers to spread the cost of their purchases without interest charges, making them an attractive alternative to credit cards. Additionally, BNPL services do not require hard credit checks and an increasing number of merchants are accepting this payment method, making it easier to access for consumers than traditional credit.
Some recommendations for BNPL vendors include differentiating their services by:
- offering virtual cards
- browser extensions that automatically facilitate BNPL payment services
- digital loyalty schemes
In an accompanying paper, the research firm noted some BNPL weaknesses such as users who borrow beyond their means and chalk up large debts from late payment fees and interest rates. Also noted was the fact that the rate of growth of the BNPL industry has in some countries “vastly overtaken the pace in which regulatory bodies have been able to act. For example, in the UK not all BNPL products are regulated by the FCA (Financial Conduct Authority). There are plans for the market to be regulated by the FCA in future, as potential harm to consumers was identified in this sector. With less regulation, and softer credit checks, comes a greater risk of consumers spending beyond their means.
In April 2021, a study conducted by Citizens Advice had found that 41% of respondents had struggled to make a repayment. Although softer credit checks make credit more accessible to a wider range of consumers, it also results in a lack of consumer understanding and care, increasing the number of users falling into a debt spiral. BNPL credit also holds a higher risk of fraudulent activity within the BNPL market compared to traditional credit, due to less stringent checking requirements.
The paper has noted that it is crucial for BNPL vendors be held to similar, if not the same, standards as traditional credit and loans.