Fishing experience

Money 20/20 EU: what future for the BNPL?

The final day of Money 20/20 Europe opened with a hot topic on everyone’s mind, with the session titled “What’s next for buy now, pay later (BNPL)?” As the UK and other governments have begun to focus on regulating this form of credit, this panel discussed what needs to be done to make this tool sustainable and beneficial to consumers.

The panel included Ruth Spratt, UK country manager at Zip, Clare Gambardella, chief account officer at Zopa, and Alice Tapper, financial expert and author of Go Fund Yourself.

“It’s a very exciting space. It’s a space for growth,” Spratt commented. “It’s a product that customers love and continue to love and use by the millions around the world. So, you know, it’s not going anywhere.

Gambardella spoke about BNPL’s current position: “We are seeing a situation where the proportion of client results is not as positive as we would like. And I think it’s really down to issues of affordability, transparency of the agreement that the customer has made, and the tools and education that customers have to deal with debt at the time they have it. accept, in what can be a fairly fragmented environment.

Asked about the perception of BNPL as a “healthy” form of credit, Tapper said that “when it comes to good and bad credit, I don’t think it comes down to products specifically. The usefulness of credit lies in what it allows people to do and how much it costs them. A great use case for BNPL is if someone would otherwise have had to take out a payday loan and it’s an item they need or will add value to their life. We know that people don’t use BNPL in this way yet.

Regarding one of the next steps potentially needed for BNPL, Gambardella said, “I think accessibility controls have two really important roles to play. The first is to ensure that the credit the customer takes is affordable. I agree that some people just use it to spread out payments for the money they have, statistics released a few weeks ago suggest that between a third and a quarter of people miss payments or make late payments at some point in their BNPL journey. That’s a pretty high proportion.

She continued that “the second important thing is that when the affordability check is not done, credit file reporting is not done consistently, which dilutes the accuracy of credit reports for other lenders. So when people issue credit cards or loans, they don’t necessarily have a complete credit picture of the customer. This allows customers not only to incur additional debt from BNPL, but also to potentially incur other forms of debt that they may find difficult to repay.

Tapper spoke about the importance of disclosing this as a form of credit, saying, “I think we often use that line about how financial education is really important in schools because it means people take better decisions. In fact, while that would be great, I think it puts too much of a responsibility on the consumer. Really, you need to make sure there is good quality information when people are using financial products.

Regarding the upcoming legislation, Spratt said: “The interest of the consumer protection regulation is the right thing to do. If our systems and processes do not work as intended, then customers must have the right recourse. However, with the Financial Ombudsman in particular, a case costs £750 regardless of the outcome […] it’s not proportionate.

Spratt continued: “It should be proportionate, it should be fair, it should be on the consumer’s side, but it should include all short-term credit payments.”

Gambardella added that “the three key things that I think of are affordability, standardized credit reports and protection for distressed consumers.”

Tapper concluded with a challenge to regulators, “I would also like to challenge regulators in general to be a little more forward-thinking about these kinds of anticipatory technologies like this.”