Why Standardization Could Aid BNPL Customers

PYMNTS interviews Omri Flicker, chief legal and risk officer at Splitit, about why BNPL needs to have regulatory oversight.

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Buy now, pay later (BNPL) has long been considered a valuable gateway for populations traditionally underserved by legacy credit options. While many considered this to be the first time such credit was available at all, it already existed in the form of riskier options such as overdraft facilities, payday loans and pawn loans.

“[BNPL was considered many consumers’] first taste of credit in order to build credit histories,” said Flicker. “But the numbers tell us that this is not necessarily true.”

BNPL has not exactly been risk-free itself, either. While its interest rates still fall far below the 20% often charged by traditional cards, some BNPL providers can make installment loans prohibitively expensive by tacking on fees. With a growing segment of BNPL users leveraging this option for everyday expenses, these fees can add up quickly.

“[There can be high] interest rates associated with BNPL in the event of missed payments. There’s [also] an overall lack of standardized disclosures — pre-purchase and post-purchase — and no uniform reporting to credit bureaus.”

A certain level of regulatory oversight is called for to prevent predatory practices by some unscrupulous BNPL providers. In the U.S., this will likely come from the CFPB [Consumer Financial Protection Bureau], which is currently discussing means to bring the BNPL industry under similar oversight to traditional credit bureaus. Other countries, such as Australia, might also provide inspiration, with ideas including industrywide credit reporting and a dispute resolution process that clearly delineates the obligations of third-party providers and borrowers.

“The credit card regulatory regime makes a lot of sense — and [Splitit is] trying to stay within that regime. There are a lot of consumer protections there — and so we think the interest in BNPL by regulators should be welcomed.”