Buy Now Pay Later: New Rules Consumers Should Know

Buy Now Pay Later: New Rules Consumers Should Know

Buy now, pay later, consumer models have taken the US payments sector by storm.

BNPL payment models often resonate with online shoppers in the US, who make a modest down payment up front and pay the remaining balance on their scheduled due dates – often four payments over four months. Currently, BNPL mobile apps such as Klarna, Afterpay and Affirm offer easy-to-use BNPL services.

Some companies go to great lengths to accommodate BNPL users.

Take Klarna, Buy Now, Pay Later is just one of their offerings.

The company also includes other payment options such as Pay Now, which enables consumers to pay immediately and in full at checkout, the company said in a statement.

Additionally, Klarna offers the option to pay within 30 days, the Klarna Card, a shopping app that allows consumers to pay with Klarna anywhere online, track returns and price drop notifications; Manage returns Access financial overviews and budgeting tools, among other services.

American consumers undoubtedly love the “copper nails” that make up the LNB, especially avoiding large debt obligations, which leaves more flexibility in the family budget. According to a survey conducted by Forbes Advisor in May 2022, 59% of Americans have used a BNPL payment plan or plan to do so by the holiday shopping season.

However, BNPL comes with its fair share of risks.

“BNPL can be risky for younger consumers and others who are not accustomed to reading fine scripts,” said Mark Churazak, a partner specializing in financial advisory at law firm Sherman & Sterling. Point at which Piper should get paid.”

Staring at the crystal ball

With BNPL firmly entrenched in the retail experience of consumers, personal finance experts are speculating about what the method will look like over the next year or two.

Some of this speculation falls into the conquest category, Chairman Howard Dvorkin has been tracking BNPL trends since Buy Now, and the Pay Revolution later erupted. Here’s his view on the next step with BNPL.

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More regulations. “even with [Consumer Financial Protection Bureau] Announcing that it will regulate BNPL-linked fintechs, consumer protection measures cannot come sooner,” Dvorkin said. “With the holidays approaching, the ‘new situation’ could mean a very traditional holiday season: a debt-ridden season.”

Credit bureaus plan to start reporting BNPL payments, and unpaid payments. With credit bureaus getting involved in BNPL, consumers are exposed to greater risks. “This makes caution even more important when dealing with BNPL, as hits to your balance can limit your financial options,” Dvorkin said.

plastic payments. Credit card companies are looking to compete with BNPL companies. This means that consumers have to read at length, ie buy now, and pay for subsequent agreements they enter into with the credit card company. “These agreements are likely to be tougher and have more penalties,” Dvorkin noted.

High card debt. BNPL users who use their credit cards to cover their purchases are likely to face disruptions in the event of an economic downturn. “These users often accumulate debt, and while BNPL services are slow to send debt to collections, credit card companies are fast,” Dvorkin added.

Many credit card companies such as American Express (AXP) City (c,) and Chase (JPM) They have already rolled out their own BNPL services, and industry experts expect this trend to continue.

“BNPL is going to be a crowded place, with pure plays, unicorns like Grab, and financial institutions entering the game,” said Gayathri Gopal, Senior Advisor to the Innovation Board.

But even as BNPL providers adopt rewards and digital wallets, credit card issuers will struggle more for a different advantage, Gopal told TheStreet.

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For example, with Apple Pay later (AAPL) Now, consumers will use the existing line of credit to finance the installments.” “What would have been a loan from the credit card company was a BNPL loan through Apple Pay.”

In addition, BNPL companies do not report to credit bureaus at this time, but this may change.

“Leading providers such as Afterpay, Affirm and Klarna report some loans to the credit bureaus,” Gopal said.

“Depending on each provider’s terms and conditions, your loans may be reported to the credit bureau, which affects your credit score.”

While Apple plans to release a BNPL, that hasn’t happened yet. This release is “comes in a future update to eligible US applicants for online and in-app purchases on iPhone and iPad,” Apple said in a recent statement.)

Klarna, Denies Reporting of BNPL Activity to Credit Agencies in the US “In practice, Klarna does not report account information or payment history to any US-wide credit bureaus,” a spokesperson told TheStreet.

The company already started reporting to credit reference agencies in the UK in June. The company reported “on-time paid purchases, late payments and unpaid purchases for Pay on 30 and Pay on 3 orders made on or after June 1, 2022,” according to a company press release.

Regulatory lights in special focus

Regulatory scrutiny may be the BNPL’s biggest problem going forward.

“The future of BNPL continues to look bright as expected sector transactions are the fastest growing new payment options in the industry,” said Jason Bohrer, CEO of the American Payments Forum. BNPL now accounts for 3% of all transactions in the US and [is forecast] to grow to nearly 10% by 2024.”

This growth has attracted the attention of federal government regulators, particularly given that every major payment network operating within the United States has dedicated resources to supporting and growing their BNPL offerings.

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“As with most new technologies, the US Consumer Financial Protection Bureau closely monitors the dynamics associated with the BNPL to ensure that appropriate safeguards are in place to protect consumers,” Bohrer said.

“Credit bureaus do not currently count BNPL transactions in an individual’s credit rating; however, they are weighing the option to include BNPL data as additional information in the report until a more specific trend is identified by regulators.”

Government regulators have certainly seen BNPL take different forms, especially as credit card companies have started offering their own flexible payment options.

“These trends will likely be closely evaluated by regulators,” said Michael Hirschfield, CEO of Accrue Savings. “Credit reporting is one way to regulate the BNPL industry and is likely to influence a consumer’s decision to sign up. But its full impact will depend on other potential changes in the application and approval process.”

The CFPB plans to start regulating BNP companies and will issue guidelines or rule to align industry standards with credit card companies. “This will be a huge blow to the sector, especially with the assessment of Clarna, Affirm and Zip,” Gopal said.

Depending on how strong the moves of the CFPB are, the path ahead for BNPL companies could be very challenging.

“Many companies will have to spend more resources in the areas of legal, compliance and risk to navigate the regulatory landscape,” Gopal noted. “Margins will erode, and we could see more mergers and acquisitions in this sector.”

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