Regulatory Risks

Owing to the momentum the BNPL sector witnessed, regulators across various geographies have responded to the risks and challenges that the new business models in the sector present. The BNPL sector which enjoyed regulatory arbitrage in the beginning is under the regulatory microscope facing intense scrutiny, directives, and guidelines to ensure customer protection and financial stability.

The Reserve Bank of India’s recent directive of barring non-bank wallets and prepaid cards from receiving lines of credit serves to be just one of the many steps taken in regulating the sphere. Indian BNPL providers, such as LazyPay and Slice, have since then temporarily suspended their BNPL services to comply with the latest order. The Monetary Authority of Singapore (MAS) also called for a code of conduct that aims to ensure BNPL providers will include safeguards against over-indebtedness by consumers. Not only that, but industry giants Grab, Atome, and Hoolah co-established the “Buy Now, Pay Later Working Group” under the guidance of MAS to develop a BNPL framework for the local market. The UK isn’t far behind on enforcing appropriate terms – with the Financial Conduct Authority asking BNPL firms Klarna, Laybuy, Clearpay, and Openpay to make amends in their consumer contracts to incorporate the fairness and transparency requirements with respect to the lending practice. Klarna took this a step further by deciding to report BNPL information to credit reference agencies Experian and Transunion during the regulatory clampdown in the region.

Disruptors Disrupted

BNPL providers who aimed to disrupt the banking industry, are facing intense competition from new entrants such as traditional banks, neobanks, and BigTechs. Availability of credit-focused FinTech infrastructures, regulatory setups, and participation from card networks and credit bureaus is expected to further ease the way for players to launch their own set of BNPL services.

Apple’s Apple Pay Later feature takes the cake for BigTech’s move into the core banking realm, and may lead the way for creative destruction in the sector given the clout Apple enjoys both with consumers and merchants.

Several traditional banks such as NatWest in the UK, Deutsche Bank in Germany, and National Australia Bank in Australia have launched their own version of BNPL services to consumers and merchants. In 2021, several neobanks launched BNPL, such as Monzo and N26 in the UK and Europe, Marcus and MoneyLion in the US, Nubank in Latin America, and Tymebank in Africa. In 2022 we saw this trend extend further with challenger banks Revolut and Zopa launching BNPL in Ireland and the UK respectively.

2022 also witnessed key initiatives from FinTech infrastructure platforms such as Finastra and Fiserv, who have also joined the BNPL race by offering enabling technologies to banks and merchants. Traditional credit bureaus such as TransUnion, Experian, and Equifax have extended their data and analytics services to ensure the BNPL sector goes through the transformation towards responsible lending under the watchful maneuvers of the regulated and experienced credit reference agencies.

Teaming Together

The year 2022 has seen BNPL service providers team up with banks, FinTechs, and tech firms on multiple projects to introduce more flexible payment options for a seamless checkout experience. Some noteworthy collaborations include:

• • BNPL platform Klarna announced its partnership with legendary NBA franchise, the Chicago Bulls to promote its all-in-one shopping service and interest-free 4-month payment plan to Chicago Bulls fans, by offering them unique co-branded experiences in the stadium, limited edition merch, and more.

• • Verifone announced a new partnership with BNPL service provider Affirm that enabled merchants to offer customers the flexibility of paying at their own pace, meeting the needs of merchants and consumers. With this, consumers will have instant installment approval at checkout up to a pre-approved credit limit and flexible installment repayment periods.

• • In Singapore, Mastercard, DBS Bank, and Pine Labs formed a trio and partnered to launch ‘Mastercard Installments with Pine Labs”, letting DBS/POSB cardholders get exciting BNPL deals. With this, consumers will have instant installment approval at checkout up to a pre-approved credit limit and flexible installment repayment periods.

Fastidious Funding

BNPL funding rounds and multi-billion dollar valuations are a thing of the past. In fact, several industry commentators and experts attribute the errors of the BNPL sector to the availability of excessive and low-cost venture funds. 2022 has witnessed a limited number of BNPL funding rounds and investors are circumspect and somber.

Scalapay, a BNPL provider, raised $497M in Series B investment funding that boosted its valuation above $1B, making it Italy’s first unicorn. New York-based FinTech Walnut, which enables users to pay for healthcare costs via BNPL offering, raised $110M in a Series A round that will make it easier for patients to afford and access medical care by paying in monthly installments. The story doesn’t end there – Danish BNPL company ViaBill also secured $120M in debt and equity. With the help of MasterCard, the firm has developed a solution that can be used online or in-store to fill the gap present in brick-and-mortar BNPL solutions.

It hasn’t been all rainbows and sunshine in the BNPL environment, however. BNPL behemoth Klarna, which was just riding the high of reaching a possible $60B price tag in February from courting new investors months after its $639M raise, saw a great plummet of its valuation at $6.7B when it confirmed its new $800M raise in July. Although the plunge still paints a positive picture against the firm’s 2018 valuation of $5.5B, the 85% slash speaks volumes about how investors are ‘voting in the opposite direction’ in such turbulent times.

Another firm whose activities have been making for some talk-of-the-town headlines is Zip, an Aussie BNPL firm, who announced its plans to acquire US-based rival Sezzle in February, valuing the latter at $491M based on a 22% premium to its then share price. However, market uncertainty and a negative debt scenario have since then had the Australian company call it quits on the acquisition, instead turning its attention towards its profitability goals. As compensation for the costs associated with the deal, Zip is to pay Sezzle $11M.

Extending Services Across Geographies

BNPL’s ultimate goal remains to be consumer-focused and beneficial no matter where it is adapted. Although BNPL finds its strongest base in Europe, new economies in the Middle East, Asia Pacific, and South America are looking for ways to get involved.