Are BNPLs Whistling Past the Regulatory Graveyard?

We have written about how regulators around the world have to varying degrees put buy now pay later in their crosshairs. 

As the popular payment method gained popularity, regulators and consumer advocates sounded the alarm of the potential for a debt bubble, as well as encouraging irresponsible consumer behaviors. The latter fear has been bolstered by recent reports that consumers are increasingly using BNPL to purchase necessities. 

Some regulators have already pounced while others have demurred or are still deciding what to do. But in general, a lack of regulation thus far has helped fuel the growth of BNPL, which competes against more highly regulated options like credit cards.

Ep. 24 Kicks Around MSFT AI & BNPL Regulation

In Australia, for example, where BNPL has deep roots, regulators have begun treating BNPL as another credit product. Which by any definition it most certainly is. 

Meanwhile, UK regulators appeared poised to follow suit with rules similar to Australia’s but lacked the will to follow through. 

In the US, the Consumer Finance Protection Bureau released a report last September that indicated plans to regulate BNPL. The intention was to regulate BNPLs as if they were credit card companies, which is essentially what Australia has done. Yet here we are a year later and nothing has happened in the US. At least not yet.

Head in the Sand?

This all begs the question of what should the top BNPL platforms like Affirm, Klarna, Afterpay, Paypal, and others do about regulation. Do they accumulate lobbyists, argue every point, and try either to drive it off or help regulators find a new target?

Do they stick their heads in the sand and hope it all goes away? Or do they embrace its inevitability and partner with regulators to come up with a workable solution?

Affirm CEO Max Levchin is reportedly saying that the best way to deal with regulators is to work with them, not ignore them. 

According to an article this week in Payments Dive, which reported on a Goldman Sachs conference that Levchin spoke at, the CEO pushes back on the head-in-the-sand school of lobbying. 

“I think a fair amount of our competitors believe that they’ll either talk their way out of [regulatory attention] or hide their way out of it,” Levchin said at the September 7 conference, according to Payments Dive. 

‘The Eyes of the Regulators are Upon Us’

Affirm’s approach is apparently quite different. Or at least it says so.

“At our scale, the eye of the regulator is upon us,” Levchin said. “From the very beginning, our point of view was, you either hide, but then you can’t grow. Or you embrace it and then you try to build bridges and communicate exactly who you are and how you do what you do.” 

So what does “embrace it” mean? In Affirm’s case, it means being transparent with regulators about its risk model for starters. And being willing to have conversations with regulators about things like fair lending practices.

Regulators Swooping in on Thriving BNPL

Yet reading between the lines, it appears Levchin has the same goals as his competitors.

He also told the audience that regulation carries costs which of course it often does. For example, hiring all the compliance people needed to keep up with regulations. The implication of this is of course that regulation makes his product more expensive.

There is something of a tradition of tech executives ostensibly inviting regulators in while resisting them at the same time.

In fairness, the Payments Dive report also quotes a Klarna spokesperson saying the company “wholeheartedly” supports regulation. But of course, that is what one would expect the company to say.

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