BNPL still on the radar of European authorities

Given the popularity of the concept and the potential risk of over-indebtedness, several countries are now closely studying the regulations related to the Buy Now Pay Later (BNPL). After the UK, it is now the turn of the EU to tighten the rules around BNPL.

FACTS 

• The European text on the revisions of the consumer credit directive will be presented to the plenary session of the European Parliament before the summer vacations.

• Given the attractiveness of BNPL, almost all authorities around the world are concerned that some consumers are over-indebted and have decided to better regulate this practice.

• In the European Union, BNPL will soon be better regulated: 

• While loans of less than €200 or loans of less than 90 days are still exempt from the Consumer Credit Directive, they will be taken into account when the directive is revised.

  • Lenders will need to thoroughly assess the creditworthiness of consumers.

  • Advertisements will have to mention the risks of borrowing and interest rates may be capped to prevent abuse.

  • When the directive is adopted, each Member State will be free to transpose it. As a reminder, in 2008, France chose to be much stricter than the European directive.

CHALLENGES

• A better study of the creditworthiness of consumers: discussions are still ongoing in Brussels. At first, they wanted to exclude marketplaces (such as Amazon) so as not to penalize small merchants. But this possibility has finally been ruled out and the Swedish Presidency of the Council of the Union wants to close the file quickly, with a vote in plenary at the European Parliament scheduled before the summer vacations.

• An impact on the customer experience: if BNPL regulations were to change, this could have a significant impact on the fluidity of the customer experience and, in turn, on the profitability and attractiveness of BNPL. For example, if a customer has to submit a pay slip, some customers will not complete their purchase in installments. The dilemma is then to find a compromise that does not destroy the attractiveness of the product for consumers and distributors. 

• Pressure on BNPL's profitability: the operational costs linked to risk analysis and financial management, if they become the same as those of consumer credit, will have a real negative impact on profitability.

MARKET PERSPECTIVE 

• In the UK, BNPL players are strictly regulated by the country's financial regulator, the Financial Conduct Authority. Last February, the agency introduced a bill to launch a public consultation on interest rates, time limits, consumer information and consumer credit analysis. 

• An alert from the German authorities, after in particular a study on young people under 25 years, and the increase of 98% between 2019 and 2020, complaints related to this type of payment in Germany, according to the VZBV :

  • German authorities are particularly concerned about the risk of insolvency of young people under 25 years:

    • 50% of young Germans have already used a BNPL solution.

    • Not least due to the simplicity of the integrated shopping platform and appreciate the possibility to order and return clothes in several sizes. 

    • The problem is that 10% of young people "often" forget to pay, and 3% "almost always", according to research by the German credit agency Schufa.

    • Nearly 40% of young people also say they use BNPL for purchases they cannot afford.