Two-thirds of BNPL users are subprime; lack of standards for disclosure of fees, payments, data collection, and credit reporting challenge understanding of credit quality and total debt burden
BOSTON, April 15, 2022 /PRNewswire/ — Weak regulatory oversight including a lack of standards for the disclosure of fees, payments, data collection, and credit reporting may lead to problems for the rapidly growing “buy now, pay later (BNPL)” industry, according to a new paper from the Mossavar-Rahmani Center for Business and Government at The Harvard Kennedy School.
The paper (“Grow Now, Regulate Later“) notes that globally BNPL products are expected to account for $680 billion in transactions by 2025 or about 12% of all eCommerce sales on goods. This growth is being driven primarily by younger consumers, with two-thirds of BNPL borrowers falling into the subprime category (TransUnion survey), making them especially vulnerable to negative changes in an economy that is already unstable. At the same time, the unprecedented nature of the industry and lack of oversight makes it difficult to properly evaluate the risks including significant subprime borrowing and total consumer debt burden.
“While there are many good actors and the industry offers access and convenience for consumers, it is naturally engaging in what we call ‘regulatory arbitrage’ which has allowed it to generally avoid the kind …