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From London this week came details of much-anticipated proposals to tackle the pay-later loans business. If the plans are enacted by the British parliament as expected, the Financial Conduct Authority (FCA) will only permit Buy now, pay later loans from lenders it has approved. Any advertising encouraging and incentivising pay-later loans will be more closely scrutinised, while the lenders themselves will be mandated to undertake affordability checks and avoid the kind of stacked-loan scenarios that have become a source of anxiety in Britain as the cost-of-living crisis there intensifies. Consumer advocates are warning that the typical legislative timetable may need to be speeded up as swifter implementation is needed for the public good.
BNPL borrowers in the United Kingdom do not have recourse to the country's Financial Ombudsman Service: that will change too if these proposals become law. One civil servant involved in the effort noted that, "By holding [BNPL] to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK." That raising of standards is part of a bigger vision from the British government, which is planning to reform the legal framework around consumer credit, now in place for almost half a century and created in a world without smartphones, fast fashion or Brexit.
Meanwhile, it continues to be a bruising period for pay-later insurgents in Australia, a country whose recent general election produced a new administration keen to put its stamp on consumer finance. Although the minister responsible acknowledges the importance of the innovations and the contribution of the industry's own code of conduct, a new regulatory regime for BNPL is now promised. On the commercial side, new players are possibly facing an existential crisis, with one high-profile investor, Andrew Brown, telling the country's leading newspaper that "BNPL business as a standalone means that you are going to attract a large number of people who are incapable of paying their money back, particularly if you don't have robust credit checks". One sign of the unprecedented sectoral pressure is the collapse of the sale of Humm to Latitude, which had been valued in February at 335 million Australian dollars ($230m).
Regulatory headwinds are also gathering in the United States, where a recent blog post published by consumer watchdog CFPB calls for greater standardisation in credit reporting for BNPL, suggesting that the leading credit bureaux should furnish both positive and negative data as well as consistent "codes and formats appropriate to the unique characteristics of the product".
The world of BNPL, though busy, seems almost calm compared to the extraordinary pace of developments this month in India, which 1.4 billion people call home and where smartphone penetration now stands at 59 per 100 inhabitants. With smartphones come payments apps, especially in a historically underbanked market such as this: now the operators of 'Prepaid Payment Instruments' have been told that, regardless of their funding situation, they cannot offer credit lines unless they are doing so in conjunction with fully licensed banks. This will be especially big news for newcomers such as Slice, KreditBee and the new breed of instalment-loan providers, while issuers such as HDFC and state-owned rival SBI Card have reason for cheer after a difficult period in the card-based lending business.
In other good news for traditional issuers, the central bank has decreed that credit cards will be allowed to link with the all-important consumer-facing payments platform UPI (Unified Payments Interface). There are questions still to be answered however about what merchant discount rate would apply.
Meanwhile, WhatsApp, which offers P2P transactions using UPI rails, has chosen RazorpayX to handle its cashback experience for users: reports say that RazorpayX has processed a fifth of all the interface's registered users in the past year. This is no small figure: UPI's annual transaction value came to $961 billion during 2021, according to Argus Advisory Research's new market report for India, which will be published in coming weeks.
Latin America too, especially Brazil, has seen soaring fintech activity and values as the implications of a similar dynamic – deepening smartphone penetration and a historically under-banked populace – find expression in new commercial, infrastructural and regulatory developments. The Financial Times notes that leading digital bank Nubank, now the third-largest issuer by number of credit cards, is planning to acquire digital startups as a consolidation phase gets into gear across the continent.
Another big name in Brazilian cards and payments, Inter, launched a US unit yesterday, targeting Latin American emigrants in the United States who lack satisfactory banking solutions: the centrepiece is recent acquisition Usend, a cross-border payments app. Inter, which serves over 20 million customers, debuted on the Nasdaq stock exchange this week.
Among the host of ambitious new players in neighbouring Colombia is SoftBank-backed delivery app Rappi, which gave birth to RappiPay three years ago in a joint venture with Banco Davivienda. Now the app is going to also offer digital banking services. To date, RappiPay has been confined to offering an online savings account as well as a credit card, although its geographical reach already extends well beyond its domestic market to reach consumers in Brazil, Peru, Mexico and Chile. Backed by SoftBank, RappiPay have issued an estimated 200,000 credit cards in Colombia.
Other stories of interest this week
Europe: Factors combine to undermine immediate payments ecosystem
Europe: Revolut rolling out BNPL, starting in Ireland
Germany: Open Banking's GoCardless launches Instant Bank Pay
UK: Key regulator conducting two market reviews into card fees
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