Alma CEO Says Zero Late Fee Policy Risky for BNPL

Late fees can be an important source of revenue for traditional lenders, and for some credit card companies, it can represent up to 20% of their annual revenues. This means that loan providers that choose not to charge these penalty fees, such as Paris-based buy now, pay later (BNPL) firm Alma, risk losing out on a considerable amount of money each year.

But according to Louis Chatriot, the firm’s co-founder and CEO, aligning consumers’ interest and company profitability has always been one of their top priorities: “Alma is the only BNPL company in the world that has never charged a single euro in late fees,” he told PYMNTS in an interview.

With this zero late fee policy, lending to the right people who can reimburse funds becomes crucial to minimize the risk of revenue loss to the company, and Chatriot said that is something the French FinTech firm has done quite well over the years.

“We have one of the best success rates from that standpoint,” he noted. “Less than 0.01% of Alma payments end up with over indebted people which, [compared to] the figures in the U.K., for example, are very different.”

Launched in 2019, the firm works with more than 6,000 small- to medium-sized businesses (SMBs) across France, Italy, Spain, Germany and Belgium, offering customers the ability to make payments in two, three or four installments or using a 10-month or 12-month plan.

“It’s [BNPL] a must have, as a merchant you don’t have a choice. You have to offer that option because consumers are asking for that,” argued Chatriot, a former executive at online payments giant Stripe.

He said the indispensable solution fetches the Paris-headquartered startup more than $1 billion in underlying sales every year, a figure which no doubt caught the attention of several investors who injected $239 million in the business during a Series C round announced last month.

Read more: French Startup BNPL Firm Alma Raises $239M in Series C

The firm recently launched a mobile app to help consumers effectively manage their Alma payments, and they will soon launch a virtual card product in the first half of this year. That card, according to Chatriot, will be integrated into the mobile app and has been designed to enable consumers to shop anywhere, both online and in stores, without being limited to specific merchants.

“It’s [virtual card] very close to what credit cards offer today, but the main difference is that it’s not a revolving credit installment credit, but rather a fixed loan — you know from the get-go how you’re going to pay, no more no less,” said Chatriot. “So, for European customers, I think it’s a product that makes much more sense than traditional credit cards.” said Chatriot.

Access to User Data Is Key

There’s been a lot of buzz created around the looming BNPL regulation in the U.K., but according to Chatriot, it is nothing new in a country like France, where consumer protection rights have been high on the list for decades.

“We already did that 10 years [ago], it’s just common sense,” he added. However, he said regulators must ensure that directives are not too rigid in detailing what exactly the user experience should look like, “because then you basically stifle innovation, and that utility is bad for consumers and merchants.”

Regulators wanting to support BNPL providers like Alma that do not want to charge late fees can ensure they have easy access to user data, which will enable them to lend to the right profiles.

But for regulators in a region like Europe — home to the General Data Protection Regulation (GDPR), considered one of the toughest data privacy laws in the world — this can be quite a challenging move, in addition to the fact that countries like France don’t have a credit scoring system to determine a consumer’s creditworthiness.

The solution, Chatriot said, is to make it a requirement for all financial actors to share their customer data with other financial actors and enable consumers to share their banking information with any company of their choice.

“This is, by the way, taking GDPR to the letter — the [whole idea] behind the GDPR is that customer data should not be owned by banks, but should be owned by consumers,” he said, adding that currently, banking institutions make it extremely difficult for consumers to share their data with companies like Alma.

Consumers are the ones who end up feeling the pinch, as they either can’t access a loan if they don’t have a typical borrower profile, or they get stuck with loans that are too expensive because BNPL providers are not able to score them in an efficient way.

Therefore, Chatriot reiterated the need to share data for the benefit of both merchants and consumers alike, even making a commitment to share their customer data with other providers if there is a law that requires Alma to do so.

“If we collectively share [our] data, we’re going to end up with much less situations of people going too much into debt,” he said. “Whenever you read a story about someone taking on too much debt, you can trace it back to, ‘If only the bank knew their real situation, they would never have issued a loan anywhere.’”

Related: French BNPL Startup Alma Notches $59.4M Series B Funding

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