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  • Frank Tian

BNPL Regulation Update

BNPL - Latest Regulatory Actions

🇺🇸 Another Report from CFPB

CFPB released its analysis of BNPL customers’ credit profile, based on a survey of 2,000 consumers.

The higher risk profile vs. non BNPL customers is not surprising. What is interesting is: BNPL borrowers are more likely to use other credit products, contradicting the belief that they lack access to credit.

📍 “Nearly 95% of Buy Now, Pay Later borrowers had at least one credit record in another account, compared to 86% of non-borrowers.”

📍 “Buy Now, Pay Later borrowers had significantly higher usage in several other loan products when compared to non-borrowers, including retail accounts (62% compared to 44%), personal loans (32% compared to 13%), and student loans (33% compared to 17%).”

Last year, CFPB published a comprehensive BNPL report based on data from 5 largest operators. However, the subject did not make into the priority list as bank fees, open banking, and crypto.

🇬🇧 Treasury Released Draft Legislation

Two years after the Woodland report, the regulation of BNPL began to come into shape.

Released in Feb 2023, the draft legislation calls for mandatory affordability checks, licensing of operators, and fair marketing.

🇦🇺 Public Consultation Out

In Feb 2023, Australia released all the opinion submissions on the proposed three BNPL regulation options:

1/ Tougher self-regulation code + affordability check

2/ Limited regulation under the credit act, including required licensing.

3/ Full regulation under the credit act - treat BNPL the same as credit cards.

The government is set to regulate BNPL by the end of 2023.

🤔 Ironically, the final BNPL regulations most likely will arrive at a time they are needed least.

The fast rising interest rate and fierce competitions have forced pure BNPL players to tighten risk control, trim expenses, exit markets, and/or pivot into different business models.

Looking forward, can regulations be designed in a way beyond existing products? To minimize the regulation arbitrage from future financial innovations.

Graph source: CFPB, March 2023.

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