FinTech Magazine - June 2023 | Page 126

One issue that runs parallel with affordable lending is that of buy-now-pay-later ( BNPL ). Admittedly a type of credit in itself , it is often underestimated by consumers who increasingly think nothing of spreading the cost of purchases over the next few months . As BNPL providers strive to innovate with their repayment terms , consumers risk being caught out by an accumulation of BNPL debt further down the line .

Todd Latham , CEO of technology platform Divido , argues that the sector can still do more to protect customers : “ We are pleased to see that affordability checks are now becoming standard practice for many BNPL providers . These consider the customer ' s income and any outstanding loan commitments , discovered via a stringent credit check . This is a great first step towards protecting the customer from taking out a loan they can ' t afford , or too many loans at the same time .

“ Retailers can go even further by working with tierone lenders , who offer this calibre of affordability checking as standard . It may sound counterintuitive , since the lender ' s acceptance rates may be lower – but it will ultimately be better for the consumers and will help to produce fewer missed repayments , meaning fewer penalty fees .”

He also notes that we ' re seeing an evolution in the BNPL market , driven by continued pressure on consumers ' wallets . Recently , Klarna launched an app-based shopping platform that combines all their merchants in one place – a kind of price comparison website just for products that you can pay off monthly . It ' s a tempting proposition for customers , and Latham expects to see more of these marketplaces , but he warns that it ' s not a flawless strategy .

“ It puts merchants in a race to the bottom by forcing them to undercut their competitors and encourages shoppers to pay through BNPL even when a cash or card payment may be easier , not to mention cheaper for the merchant .”

126 June 2023