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Interest in buy now pay later (BNPL) services seems to be waning. BNPL is an installment plan that allows consumers to pay for purchases later in equal installments. BNPL services profit by levying charges on merchants for transaction processing and occasionally by imposing late fees or interest on customers who fail to pay punctually. It has been described as "similar to a credit card but without the hassles of an application process, card-swiping infrastructure, and separate limits for purchases and cash withdrawals". However, the BNPL sector now seems to be in decline, with numerous BNPL services either retracting or ceasing operations altogether, as high interest rates challenge the basic business model and regulatory pressure.

The Bank for International Settlements (BIS) reviewed buy now, pay later (BNPL) payment schemes. It found that, BNPL is more widespread in countries with greater e-commerce penetration, higher inflation, more inefficient banking systems, and looser financial and consumer protection regulation. Versus traditional consumer credit, BNPL users are typically younger, with less education, more debt, lower credit scores and higher delinquency rates. BNPL schemes are accessible even to consumers without a credit history or stable income and do not typically affect their credit scores. Customers pay interest-free instalments, which are typically not reported to credit bureaus, while merchants pay fees to increase sales and shift credit risk to BNPL platforms. Relying primarily on those fee revenues, BNPL platforms have faced profitability challenges due to high operating costs and rising credit losses.

The U.S. Consumer Financial Protection Bureau (CFPB) issued an interpretive rule that confirms that buy now, pay later (BNPL) lenders are credit card providers. Accordingly, BNPL lenders must provide consumers some key legal protections and rights that apply to conventional credit cards. These include a right to dispute charges and demand a refund from the lender after returning a product purchased with a BNPL loan. (BNPL allows customers to spread out payments into equal installments over time, and tends to be interest free. Unlike credit cards, however, consumers don't need a certain credit score to use BNPL.)

According to Nerdwallet's "2024 State of Consumer Credit Report" buy now, pay later (BNPL) plans are the second-most used form of credit payment among US consumers, with nearly 25% recently using it. BNPL allows people to enter payment agreements at the point of sale, generally without the credit requirements of a credit card or traditional loan, and most often without interest. Among the 2,061 US adults polled in April 2024, 37% of parents of minor children have used BNPL in the past 12 months, compared with 20% of nonparents of minors. And 40% of Gen Z (ages 18-27) and 36% of millennials (ages 28-43) have used BNPL during that time, compared with just 20% of Gen X (ages 44-59) and 12% of baby boomers (ages 60-78). https://www.nerdwallet.com/article/credit-cards/2024-consumer-credit-report

Despite phenomenal growth, current buy now, pay later (BNPL) models are showing to be rather unprofitable. Quinlan and Associates estimates that in Asia-Pacific (APAC), the largest BNPL firms, including Australia's Afterpay and Japan's Paidy, are currently running average profit margins of -15% per annum (p.a.), while the more nascent players operating in emerging markets like the Philippines' Cashalo and Indonesia's Akulaku are suffering from profit margins of -100% p.a. According to the analysis, APAC BNPL providers are struggling to reach profitability as costs relating to sales, marketing, funding, staff, technology, and credit losses eat into all their profits. Losses are even more pronounced for emerging market BNPL providers because of their stronger focus on long tail, unbanked/underbanked consumers, leading to much larger credit losses and funding costs. Quinlan and Associates identified three key pathways for them to become commercially viable: optimization, vertical integration and expansion.

Traditional consumer credit companies are also engaging in buy-now-pay-later (BNPL) plans. Mastercard has expanded its payment options by partnering with FinTech Jifiti to allow both merchants and issuers to offer credit and consumer financing to Mastercard holders. The company had already forged alliances with Fly Now Pay Later, Splitit, Divido and Pine Labs to provide BNPL services worldwide. Per an Accenture figure cited by Mastercard, the BNPL industry boasts an astronomical market value of $1.8 trillion.

"Mastercard is set to introduce a new Buy Now, Pay Later (BNPL) offering, Mastercard Installments for its customers in the United States, Australia and the United Kingdom. The program gives consumers a flexible, ubiquitous way to pay online and in-store through equal, interest-free installments - an additional choice to debit, credit or prepaid cards. Mastercard Installments enables banks, lenders, fintechs and wallets the ability to offer BNPL experiences at merchants with flexibility across the entire acceptance network."

"Klarna announced the addition of the ability to "Pay Now" for UK customers alongside the option to Buy Now, Pay Later (BNPL). Klarna said it took these actions after being informed by the UK Financial Ombudsman Service (FOS) that complaints about BNPL products currently could not be referred to FOS on a voluntary jurisdiction basis. Klarna said it has established its own complaints adjudicator for consumers who remain dissatisfied with how a complaint against Klarna has been handled. Klarna addeed that it has worked with consumer group, Fairer Finance, to make sure that terms & conditions are easy to understand."

While "buy now, pay later" (BNPL) can offer benefits compared to credit cards, there are lurking issues that could present challenges to the companies this holiday shopping season. In complaints to the U.S. Consumer Financial Protection Bureau, consumers have said that they've had problems with purchases, either because they couldn't make a return or get a refund, or got charged with fees they didn't understand. Right now, BNPL is not regulated in the way that credit cards are in the United States. That means there are no standards for disclosures on fees, amounts owed, credit reporting and payments. Even the due dates of payments are not as clear as a credit card with a consistent payment date. The U.K. and Australia, where BNPL has taken off even faster than in the United States, have placed these products under a regulatory regime. U.S. regulators are likely to follow suit.

Popular "buy now, pay later" shopping services like Klarna will fact stricter regulation under proposals announced by the U.K. government Tuesday. The Treasury said buy now, pay later (BNPL) firms would come under the supervision of the Financial Conduct Authority (FCA), which regulates financial services firms and markets in Britain. Such firms will be required to conduct affordability checks before lending to customers, the government said, while people will also be allowed to escalate complaints to the U.K.'s financial ombudsman. https://www.gov.uk/government/publications/government-announces-intention-to-regulate-buy-now-pay-later

New Zealand-based buy-now-pay-later (BNPL) platform Laybuy has seen a 162 per cent increase in the total amount spent through its platform over the past year. Laybuy's customers have spent over NZ$508m (~£238m) through its platform and the BNPL fintech has also seen a 48 per cent increase in the number of active merchants using its financing options since the end of September last year.

Amazon is testing Affirm's are testing "buy now, pay later" (BNPL) payment platform firm with select customers, and plans to make Affirm more broadly available to its customers in coming months. On the platform, customers are told the total cost of the transaction up front and have the option to split the total cost of purchases of US$50 or more into simple monthly payments at checkout. There are no late or transaction fees.

According to a study on buy now, pay later (BNPL) apps done by The Ascent, 67% of millennials don't have a credit card. For some, that's because they can't get approved, and others prefer to avoid credit. Many don't think it makes sense to use a credit card for small, everyday purchases and are worried about the impact of credit cards on their credit scores. Which one is better: BNPL apps or credit cards? The answer, as you might expect, is: It depends.

"Younger consumers of Buy Now Pay Later (BNPL) products, which require little or no credit history, now hold the most defaulted accounts in the programs. While 11% of all borrowers paid at least one late fee on the installment loans in 2021, 18% of those aged 18 to 29 fell behind on their payments, according to a Federal Reserve report. The programs, which gained popularity as the pandemic forced shoppers online, are now in the sights of credit bureaus. Equifax and Experian have said they'll start including BNPL purchases on consumers' credit reports - and that loans sent to debt collectors can also be reflected."

The U.S. Consumer Financial Protection Bureau (CFPB) published research on the U.S. Buy Now, Pay Later (BNPL) market, based on data from Affirm, Afterpay, Klarna, PayPal, and Zip Co. It identifies several benefits of BNPL loans over legacy credit products (no interest and sometimes no late fees, and ubiquitous, easy to access, simple repayment structure) and a number of potential consumer risks (a requirement to use autopay for all loan payments, data harvesting and borrower overextension).

The UK Financial Conduct Authority (FCA) is cracking down on potentially unfair and unclear terms in the contracts of Clearpay, Klarna, Laybuy and Openpay ahead of up-and-coming regulation of buy now, pay later (BNPL) market. All four firms agreed to amend their terms to address the concerns, and some will refund consumers who have been inappropriately charged fixed late payment fees for instalments that were due after they cancelled their entire online sales purchase with the retailer.

Shoppers can use Afterpay to buy items in select U.S. retail stores using their Afterpay card, a virtual, contactless card stored in their digital wallet. Just like using Afterpay online, customers can pay for their in-store purchases in four installment payments, without the need to take out a traditional loan or pay upfront fees or interest. Afterpay first introduced its in-store solution in 2016 in Australia and New Zealand (ANZ) and became one of the only online payment companies to successfully offer its service in physical stores.

The US Consumer Financial Protection Bureau (CFPB) issued a series of orders to five companies offering "buy now, pay later" (BNPL) credit. The orders to collect information on the risks and benefits of these fast-growing loans went to Affirm, Afterpay, Klarna, PayPal, and Zip. The CFPB is concerned about accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.

Full year 2021 operating losses at Swedish "buy now, pay later" (BNPL) group Klarna soared to SKR7.1 billion (versus SKr1.4 billion reported in 2020), driven by expansion to fresh markets and the challenges of underwriting a massive inflow of new customers. Credit defaults of SKR4.6 billion (versus SKR2.5 billion in 2020) were a significant proportion of losses. On the other hand, net operating income was up 38% from 2020, with the U.S. market continuing to be Klarna's fastest growing market (71% year-over-year growth).