Installment Payment FinTechs: Buy Now, Pay Later (BNPL)Alexander Davis
Installment Payment FinTechs have become some of the hottest operators in the post-COVID era. Their ability to enable consumers to purchase previously unaffordable products through novel applications has resulted in explosive growth but does not come without risks.
What holds promise for aggregators, is the era of Open Banking and PSD2, and with it, the expected incorporation of account aggregation by the incumbent banks and challengers.
In this report, we look at three key benefits which aggregators could offer to customers:
• Awareness
• Action
• Activation
Our focus is on the customer and the potential value which aggregators can create for customers.
New and Beta banks, feature comparision by Stave Partners.
For more information and reports please visit:
www.stavepartners.com
For partnership:
info@stavepartners.com
Installment Payment FinTechs: Buy Now, Pay Later (BNPL)Alexander Davis
Installment Payment FinTechs have become some of the hottest operators in the post-COVID era. Their ability to enable consumers to purchase previously unaffordable products through novel applications has resulted in explosive growth but does not come without risks.
What holds promise for aggregators, is the era of Open Banking and PSD2, and with it, the expected incorporation of account aggregation by the incumbent banks and challengers.
In this report, we look at three key benefits which aggregators could offer to customers:
• Awareness
• Action
• Activation
Our focus is on the customer and the potential value which aggregators can create for customers.
New and Beta banks, feature comparision by Stave Partners.
For more information and reports please visit:
www.stavepartners.com
For partnership:
info@stavepartners.com
Digital challenger banks have raised more capital than any other FinTech vertical in Europe, totalling nearly $500m since 2015. Mired in controversy, acquisitions, mega-rounds, and mega-write-downs, challengers are now headline news in tech/business press on a weekly basis.
These European phenomena are enabled by new regulations that make it easier than ever to start a bank. Will this emerging breed of challengers displace high street banks? Read on to learn more about:
- NPS of European incumbents and challengers
An overview of online-only, VC-backed, and branched challengers — and who is funding them
- Regional and demographic customer surveys, bank ROE, rates for savers
- The fee structure of 8 challengers and 5 incumbents
Public challengers: Metro Bank, Shawbrook, Aldermore, Virgin Money
- An overview of PSD2, a regulation that enables digital challengers
- How incumbents BBVA and Santander are “fighting back”
- Standouts in UI and App store rankings
- Global mobile banking adoption
- Predictions for 2017
Frontline Ventures is a B2B seed VC. Please ❤ if you’ve enjoyed the post and you can sign up for our newsletter at http://frontline.vc/newsletter
Starting today, you can lend online to consumers and businesses. You can reach more customers, and better qualify them. Increase your ROI by lowering your cost of lending more than 50% and increase your revenue per customer more than 25%.
Be where your customers are, when they want you. It’s a new day in banking. Digital lending is here.
That’s banking without walls.
Digital challenger banks are simplifying the financial world, creating a customer centric approach to services, and transforming the way banking is viewed by the public and the market
Burnmark has analysed 200+ challenger banks to place them on a quadrant showcasing their unique skills and strengths. To subscribe, please write to info@burnmark.com.
Banking dissatisfaction remains a critical issue months after the Bank Transfer Day protest movement urged consumers to switch to community banks and credit unions. About 11% of consumers indicate they are likely to switch primary financial institutions in the 2012, putting $675 billion in deposits at risk, according to Javelin’s 2012 FI Vulnerability Index. Citibank and Bank of America are the most vulnerable giant banks by far, with as many as one in four customers at risk of switching.
https://www.javelinstrategy.com/brochure/255
World Retail Banking Report 2015 from Capgemini and EfmaCapgemini
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46% of people ONLY use digital banking channels. Check out our webinar presentation to learn how traditional banks are leveraging mobile-first marketing strategies to improve user acquisition and retention.
Why Star Ratings Matter for Financial InclusionCGAP
Using the example of MercadoLibre, this presentation details the ways in which e-commerce sales data--not typically available for credit scoring--can enrich existing scoring models and improve their predictive power, with positive implications for the financially excluded.
High Net Worth Customer Acquisition for Banks and Credit Unions | OptiRateSerge Milman
Overview of the Banking sector competitive environment, and relative positioning of Community Banks and Credit Unions vs Mega-Banks. Why Community FIs should focus on High Net Worth Customers and how OptiRate can help.
Understanding the East African Aggregator LandscapeCGAP
What are aggregators?
Aggregators can be thought of as the glue that helps many parts of the digital financial services (DFS) ecosystem to work together.
They allow Payment Instrument Providers (PIPs) – like Mobile Network Operators (MNOs) offering mobile money services or banks offering mobile banking - to easily integrate with entities that want to send money to or receive money from end customers. These entities can be utility companies who want to receive payments, businesses who want to pay salaries or donors who want to pay recipients, for example.
Why do they matter?
Aggregators enable the seamless collection, disbursement and circulation of digital payments across multiple payment providers. They mostly work in the background, and millions of transactions in East Africa pass through them everyday–usually without customers even being aware of them.
Choosing the lender to apply for a financial product through is always another question that has to be thought about. There are so many different lenders out there and they can each offer different things to the borrower. Each loan type, and lender also has their own benefits and negative factors.
Digital challenger banks have raised more capital than any other FinTech vertical in Europe, totalling nearly $500m since 2015. Mired in controversy, acquisitions, mega-rounds, and mega-write-downs, challengers are now headline news in tech/business press on a weekly basis.
These European phenomena are enabled by new regulations that make it easier than ever to start a bank. Will this emerging breed of challengers displace high street banks? Read on to learn more about:
- NPS of European incumbents and challengers
An overview of online-only, VC-backed, and branched challengers — and who is funding them
- Regional and demographic customer surveys, bank ROE, rates for savers
- The fee structure of 8 challengers and 5 incumbents
Public challengers: Metro Bank, Shawbrook, Aldermore, Virgin Money
- An overview of PSD2, a regulation that enables digital challengers
- How incumbents BBVA and Santander are “fighting back”
- Standouts in UI and App store rankings
- Global mobile banking adoption
- Predictions for 2017
Frontline Ventures is a B2B seed VC. Please ❤ if you’ve enjoyed the post and you can sign up for our newsletter at http://frontline.vc/newsletter
Starting today, you can lend online to consumers and businesses. You can reach more customers, and better qualify them. Increase your ROI by lowering your cost of lending more than 50% and increase your revenue per customer more than 25%.
Be where your customers are, when they want you. It’s a new day in banking. Digital lending is here.
That’s banking without walls.
Digital challenger banks are simplifying the financial world, creating a customer centric approach to services, and transforming the way banking is viewed by the public and the market
Burnmark has analysed 200+ challenger banks to place them on a quadrant showcasing their unique skills and strengths. To subscribe, please write to info@burnmark.com.
Banking dissatisfaction remains a critical issue months after the Bank Transfer Day protest movement urged consumers to switch to community banks and credit unions. About 11% of consumers indicate they are likely to switch primary financial institutions in the 2012, putting $675 billion in deposits at risk, according to Javelin’s 2012 FI Vulnerability Index. Citibank and Bank of America are the most vulnerable giant banks by far, with as many as one in four customers at risk of switching.
https://www.javelinstrategy.com/brochure/255
World Retail Banking Report 2015 from Capgemini and EfmaCapgemini
The 12th annual World Retail Banking Report by Capgemini and Efma finds the bank-customer relationship is weakening. Stagnating global customer experience levels combined with an alarming increase in customers willing to leave their banks has increased the chance of customers using non-bank competitors such as brand-name retailers, FinTech firms, crowd-funding websites, peer-to-peer lenders, Internet/mobile service providers, and Apple NFC-based payment systems. The report findings underscore the need for retail banks to make investments to improve customer experience, especially in middle and back offices which have historically been ignored and are essential to providing engaging digital services through faster processing times and reduction in errors.
46% of people ONLY use digital banking channels. Check out our webinar presentation to learn how traditional banks are leveraging mobile-first marketing strategies to improve user acquisition and retention.
Why Star Ratings Matter for Financial InclusionCGAP
Using the example of MercadoLibre, this presentation details the ways in which e-commerce sales data--not typically available for credit scoring--can enrich existing scoring models and improve their predictive power, with positive implications for the financially excluded.
High Net Worth Customer Acquisition for Banks and Credit Unions | OptiRateSerge Milman
Overview of the Banking sector competitive environment, and relative positioning of Community Banks and Credit Unions vs Mega-Banks. Why Community FIs should focus on High Net Worth Customers and how OptiRate can help.
Understanding the East African Aggregator LandscapeCGAP
What are aggregators?
Aggregators can be thought of as the glue that helps many parts of the digital financial services (DFS) ecosystem to work together.
They allow Payment Instrument Providers (PIPs) – like Mobile Network Operators (MNOs) offering mobile money services or banks offering mobile banking - to easily integrate with entities that want to send money to or receive money from end customers. These entities can be utility companies who want to receive payments, businesses who want to pay salaries or donors who want to pay recipients, for example.
Why do they matter?
Aggregators enable the seamless collection, disbursement and circulation of digital payments across multiple payment providers. They mostly work in the background, and millions of transactions in East Africa pass through them everyday–usually without customers even being aware of them.
Choosing the lender to apply for a financial product through is always another question that has to be thought about. There are so many different lenders out there and they can each offer different things to the borrower. Each loan type, and lender also has their own benefits and negative factors.
Please find the briefing note on the Consumer Protection Act. It includes the KBA Alternative Dispute Resolution Model which was approved by the Governing Council as the industry model and approach on handling longstanding customer complaints and disputes.
The Consumer Financial Protection Bureau (CFPB) recently celebrated its second birthday. During its first two years of existence, the CFPB has shown itself to be an aggressive consumer-protection agency. It is particularly noteworthy because its broad jurisdictional mandate could impact virtually any business that makes a loan to any consumer. Consumer lenders need to be alert to the sweeping implications this agency will have for their future business activities.
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Since the passage of the Dodd-Frank Act, small regional banks have been forced to rethink their growth strategies as they inch closer to the $10 billion assets threshold. Here’s guidance on navigating the new regulatory field.
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Like the rest of the financial services industry, insurers are subject to increasingly complex and prescriptive regulations and standards. In the year ahead, insurers will need to focus on the new U.S.Department of Labor fiduciary standard, which is likely to have a significant effect on how insurance products are sold. Moreover, global developments, especially those related to the developing International Capital Standard, will require insurers to closely monitor – and ideally contribute to – official discussions about how globally active insurers should manage capital
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Visit WhiteHouse.gov/RegulatoryReform to view all the plans and learn more.
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5. 1
Contents
Executive summary 2
Chapter 1 Background and context
Chapter 2 The scope of BNPL regulation 9
Chapter 3 Proportionate regulatory controls for BNPL 16
Chapter 4 Equality Impact Assessment 28
Chapter 5 Responding to this consultation 30
4
6. 2
Executive summary
Consumer credit has been regulated in the UK since the Consumer Credit Act (CCA)
was passed in 1974. Since then, responsibility for much of this regulation has passed
to the Financial Conduct Authority (FCA), although many parts of the CCA continue
to apply directly. Throughout the long history of consumer credit regulation, there
has been an exemption in place designed to allow the delayed payment of goods and
services as long as that delay was time-limited and did not involve the charging of
interest. This exemption has ensured that invoicing did not fall within the definition
of regulated consumer credit, but also covers arrangements whereby goods are paid
for through a number of instalments.
Over time, a large range of products and business practices have evolved, operating
under this exemption. However, in recent years there has been a rapid growth in the
use of the exemption in the form of ‘Buy-Now Pay-Later’ (BNPL) products, in particular
through the widespread use of this product as a payment option by online retailers.
Alongside the step-change in the use of these products, there has been a rise in
concerns about whether BNPL is giving rise to consumer detriment. This was
investigated in more detail by The Woolard Review, published in February, which
identified a number of areas of potential consumer detriment that could crystallise as
this market continues to grow such as its promotion to consumers, poor consumer
understanding of the product, lack of affordability assessments and inconsistent
treatment of customers in financial difficulty.
Recognising the transformation in the use of this regulatory exemption, and the issues
identified in The Woolard Review, the government committed to introduce balanced
and proportionate regulation of BNPL. This consultation seeks views to inform final
decisions about the shape and form that such regulation should take.
The principle of proportionality is important across any regulatory intervention, as
there is always a balance to be struck to ensure that consumers are given appropriate
protections without unduly limiting the availability and cost of useful financial
products. In the case of BNPL this principle of proportionality will be achieved by:
7. 3
• ensuring that the scope of the new regulations is defined as closely as possible to
target those products where there is potential for consumer detriment; and
• calibrating the regulatory controls that are put in place for BNPL so that they are
adapted to the business model and focused on those elements of lending practice
that are most closely linked to the potential consumer detriment in this market.
Chapter 2 of this document explores the first of these two parameters in more detail,
through a closer examination of the products that use the current exemption. Chapter
3 examines the second of these parameters, discussing the key considerations the
government has identified in designing a proportionate system of regulatory controls.
Throughout the work to develop this policy, the government is also focused on
designing a regime that is straightforward for firms to understand and for the
regulator to enforce, and so would value feedback that helps us to further understand
the practical implications of the policy options.
Chapter 4 of the consultation document seeks input to help us assess the impacts of
our policy options, on businesses and consumers.
Consultation and how to
respond
The purpose of publishing the consultation document is to enable interested
parties or stakeholders to make representations on the scope and form of BNPL
regulation.
Responses are invited by 6 January 2022 and should be sent to
buynowpaylater@hmtreasury.gov.uk. Responses will be shared with the FCA unless
otherwise requested.
Further information about responding to this consultation and the way in which
personal data will be processed can be found in Chapter 5.
8. 4
Chapter 1
Background and context
Consumer credit regulation
1.1 Unsecured consumer credit is regulated under the framework provided by
the Consumer Credit Act 1974 (CCA) and the Financial Services and Markets Act
2000 (FSMA). Broadly, a consumer credit agreement is one under which an
individual is granted credit (defined as a cash loan or other 'financial
accommodation'). The scope of regulation, that is exactly which types of agreement
are regulated and which are not, is set out in detail in the Financial Services and
Markets Act 2000 (Regulated Activities) Order 2001 (the RAO). Firms which offer
regulated credit agreements must be authorised to do so by the FCA, and must
comply with relevant FCA rules as well as requirements in the CCA.
1.2 The regulation of consumer credit has key differences to the majority of
other regulated financial services products. Broadly, for most regulated products the
Treasury defines which activities are subject to regulation and delegates
responsibility for this regulation to the FCA. The FCA then develops rules, consults
on them, and undertakes a cost benefit analysis. For consumer credit the CCA
imposes statutory obligations on firms and gives protections to consumers in
addition to FCA rules. The Treasury is responsible for these statutory elements of the
regulatory regime, whilst the FCA is responsible for making conduct rules in its
consumer credit sourcebook (CONC) under its rulemaking process.
1.3 The RAO provides for some exemptions from regulation so that not all forms
of credit are regulated. In particular, this includes an exemption for interest-free
credit. The conditions that must be met in order for an agreement to fall within this
exemption's scope include:
• the agreement is a borrower-lender-supplier agreement for fixed-sum
credit;
• the number of payments to be made by the borrower is not more than
12;
• those payments are required to be made within a period of 12 months or
less; and
• the credit is provided without interest or other charges.
1.4 This exemption is set out in article 60F(2) of the RAO and is referred to in
this document as the 'A60F(2) exemption'. A range of financial arrangements fall
into this exemption, from simply providing an invoice that permits the customer to
9. 5
pay for goods and services beyond the due date, to a formal agreement to pay for
items in instalments.
Use of the A60F(2) exemption
1.5 The following section sets out the key categories of credit or financial
arrangements that the government has identified as currently making use of the
exemption outlined in A60F(2).
Unregulated BNPL
1.6 While there are some arrangements often known as 'buy now pay later' that
are regulated, the focus of this consultation is unregulated BNPL agreements. These
typically split the cost of a purchase from a merchant, for example a retailer or a
supplier of goods and services, into several equal amounts taken at regular intervals,
usually monthly, weekly or fortnightly. It is used for the purchase of a broad and
growing range of products and services. A use that has seen particularly rapid recent
growth has been for the purchase of lower-value consumer goods, particularly
fashion items. BNPL can also come in other forms such as a simple deferred
payment, whereby a lender provides a period of time in which a customer does not
have to pay, with payment then taken from the customer's account a set time after
the purchase is made and only then if the item is not returned by the customer. This
product is often used by those who want to 'try before they buy', particularly
clothing. No interest is charged on these agreements. These unregulated BNPL
products are the focus of this consultation and are referred to as BNPL throughout
this document.
Growth of BNPL
There is strong evidence to demonstrate the rapid expansion of the BNPL model in
recent years, and reason to believe that this growth will continue.
o The value of transactions using BNPL from the main providers more than
tripled in 2020.1
o 11% of consumers (i.e. around 5 million individuals) said they had used a
BNPL product since the start of the COVID-19 pandemic.2
o From the firms surveyed by the FCA, the total value of BNPL transactions
between January to December 2020 was £2.7bn3, and is expected to grow
rapidly by 2024.
Short-term Interest-free Credit
1.7 Alongside BNPL there are also other well-established financial arrangements
which make use of the A60F(2) exemption. Arrangements include formal interest-
1 The Woolard Review (https://www.fca.org.uk/publication/corporate/woolard-review-report.pdf)
2 The Woolard Review
3 The Woolard Review
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