MD Insights - 12/14 - 12/20
BNPL Shot (Not) Heard Round the World
CapitalOne introduced a major policy change last week, stating it would no longer allow its roughly 62,000,000 consumer card holders to utilize their credit cards for “buy-now-pay-later” (“BNPL”). BNPL has been an effective tool for many consumers to defer payments for goods and services - usually larger ticket items - by entering into an installment plan with a BNPL creditor at a merchant’s point-of-sale. The service offering has seen explosive growth in 2020.
Many of the economic consequences of the pandemic - high unemployment, lack of continued stimulus (as of this writing) - have made the BNPL product extremely attractive to consumers who are saving more, but still need to buy essential products and services. Up until now, CapitalOne, one of the three largest card issuers with JPMorgan Chase and Citi, had been allowing its consumer banking customers to use credit to enter into these types of arrangements. But its change of policy, and underlying rationale, seem sound; further, the change sheds light on forward-looking sentiment of the consumer banking giants: there’s still a substantial amount of short-to-mid term concern about the macro economic environment and its impact on the consumer.
In truth, and to their credit, the major BNPL players like AfterPay, Affirm, and Klarna, do not permit BNPL with credit payments, but rather, only with debit, ensuring consumers can only spend money they have in their bank accounts. A smart policy to have as it should keep regulatory oversight at bay. What will be interesting to see is how the card networks react to CapitalOne’s new policy. With CapitalOne as a major card issuer, and card network member, I would assume Mastercard and VISA may each take a similar stance to that of CapitalOne very soon.
Taking the 30,000 foot view, CapitalOne’s policy change may not have been a shot heard around the world, but its impact will be felt throughout the payments and fintech sectors writ large.
- Adam T. Hark, Managing Director, Wellesley Hills Financial, LLC