A slew of announcements around Money 20/20 Europe is evidence that the buy now, pay later space is still expanding. But the regulators are closing in. 

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The buy now, pay later (BNPL) market, which was arguably feverish before, has become even more so over the past couple of weeks, with several big announcements and panels devoted to the topic during the recent Money 20/20 Europe payments conference in Amsterdam.

The buzz on the floor was all about Apple’s announcement on the eve of the conference that it was entering the BNPL market later this year with the launch of Apple Pay Later, as part of iOS 16’s new functionality. US Apple Pay users will be able to split any purchase into four instalments, paid out over the course of six weeks, “with zero interest and no fees of any kind”.

Having a “big tech” launch a BNPL offering is a game-changer for the sector and may be cause for concern for established players such as Klarna, Affirm and Afterpay. The announcement certainly provided a definitive response to those wondering whether the honeymoon period for BNPL is over.

While Apple’s big reveal dominated many conversations, there was several recent announcements in this space worth noting. For example, UK digital bank Zopa also signalled its intent to jump on the bandwagon, pledging to “make instant, yet responsible lending decisions with products that are sustainable and fit for purpose”, what it calls “BNPL 2.0”. It is focusing on big ticket items (£250 - £30,000) that could take months to save up for.

Other announcements across the globe include Nigeria’s digital bank Carbon launching Carbon Zero, which allows customers to make purchases up to N2.5m ($6000) with interest-free credit. India’s ICICI Bank has partnered with ZestMoney, which will provide bank’s customers access to the fintech’s ‘Pay-in-3’ offering without extra cost. Netherlands-based payment service provider PayU has teamed up with Payflex to offer consumers in South Africa the ability to pay in four equal and interest-free instalments. National Australia Bank (NAB) also announced its plans to launch ‘NAB Now Pay Later’, allowing customers to split purchases up to $1000 into four payments.

And while it appears to be a crowded space, the size of the market is seeing unfettered expansion. According to research by Callsign, globally 41% of consumers have used a BNPL services. Half (51%) of those who use BNPL services use more than one provider, with almost a quarter (23%) using more than three.

The global transaction value for BNPL payments reached $120bn in 2021, according GlobalData’s latest report, ‘Buy Now Pay Later – Thematic Research’. It estimates that the value will jump 380% by 2026, to $576bn.

However, the market’s unrestricted growth has not gone unnoticed by regulators. The UK’s Financial Conduct Authority (FCA) has been scrutinising the sector since the launch of the Woolard Review in early 2021. Following on from the report, in February 2022 the FCA made Klarna, Clearpay, OpenPay and Laybuy change their terms and conditions so they are easier to understand.

More recently, Ireland extended its Consumer Protection Act to include BNPL companies, which now must be authorised by the central bank. At the beginning of the month, the European Commission launched a public consultation around the review of the second EU Payment Services Directive (PSD2), where it asks whether BNPL schemes should be included in the PSD2 list of services.

The biggest concern for the regulator is the potential for consumer over-indebtness. To address this issue, Klarna announced that, as of June, it will share BNPL transactions with UK credit reference agencies, such as Experian and TransUnion.

However, another concern is coming to the fore that may have even a bigger impact on the market than regulations: fraud. According to Callsign’s research, globally one in eight BNPL users have been victims of fraud. Of those who have been a victim of BNPL fraud, almost one in five no longer use any BNPL service.

This is an area that market players need to address. If they don’t, the regulators surely will.

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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