By the end of 2021, Buy Now Pay Later (BNPL) services had become a popular payment system by satisfying both consumers’ and merchants’ aspirations. Many consumers expressed their appreciation of the convenience the service provided, allowing small payments stretched over several weeks without interest. Merchants liked the additional customers and higher spend per visit that the financing brought. The fintech, dominated by five international companies, accounted for three percent of global e-commerce in 2021, $120-$141 billion in transaction volume. Some analysts anticipated 20-30 percent growth a year through 2026. Venture capital had rushed to support these firms and the firms were spreading globally.
While lumped into the same basket, not all BNPL companies operated in the same way or imposed the same conditions on consumers. The startups however all provided plans that split payments over four installments and relied on digital technologies for cheap authorization and servicing of the debt.
Yet not everyone hailed the success of BNPL. Consumer protection groups warned that continued proliferation of the services would end up hurting customers, especially those with limited resources. The concerns of such groups had prompted regulators in the U.S., U.K., and Australia to consider imposing strictures on the use of the financing. This raised questions about the government’s role in regulating this form of debt, since it already regulated other debt such as credit cards, auto loans and mortgages. What were regulators’ responsibilities towards the public in this case? If governments did step in to regulate the business, how would they justify their intervention, and what kind of regulation should be imposed?
Consumer advocate concerns were also filtering down to the industries BNPL was boosting. Should merchants be wary of offering BNPL options to their customers, even though they seem to increase sales? And how would the BNPL industry, which views itself as ushering in a financial revolution to empower consumers, respond? One leading BNPL CEO was asking for regulation of the industry.
Citation: Gwen Kinkead, Jason Dana, and Jamie Cox, "Buy Now, Pay Later", Yale Case 23-012, February 3, 2023.