Rising regulation in the buy now, pay later arena could be one of the factors that leads to consolidation among market players.

That’s according to analysts with credit rating agency Moody’s Investors Service who recently authored a report on the outlook for companies offering point-of-sale installment products.

The analysts painted a grim picture for BNPL companies’ future in their Nov. 8 report, noting intense competition, a tough economic landscape, continuing losses, flagging investor interest and funding for their lending services becoming more expensive. BNPL providers are hyper-focused on figuring out “the most profitable products in the most profitable geographies,” said Warren Kornfeld, a senior vice president in Moody’s financial institutions group, one of the report’s authors, during a Nov. 17 interview.

Niclas Boheman, vice president and senior credit officer at Moody's Investor Services

Niclas Boheman

Permission granted by Niclas Boheman


Regulatory guardrails around the industry could accelerate market consolidation, as companies will be forced to adapt to regulators’ demands in various geographic markets, said Kornfeld and another of the report’s authors, Niclas Boheman, vice president and senior credit officer at Moody’s.

Warren Kornfeld, senior vice president at Moody's Investor Services financial institutions group

Warren Kornfeld

Permission granted by Warren Kornfeld


The report mentioned regulatory moves in the U.S., the U.K., Australia, Sweden, Singapore and the European Union, as officials seek to enhance consumer protections and establish that BNPL loans are all held to the same standards. Regulation will mean additional costs for BNPL companies that will have to employ adequate risk management and compliance staffers, Boheman said. Those expenses could become detrimental as many BNPL providers have sought to cut costs wherever they can. 

Editor’s note: This interview has been edited for clarity and brevity.

PAYMENTS DIVE: You mention in the report that BNPL companies may be “unable to navigate the impending wave of regulation.” Can you elaborate on that?

NICLAS BOHEMAN: Ultimately, can the company afford to remain in all the jurisdictions where they are trying to grow? Because, of course, regulation doesn’t look the same in each jurisdiction. The U.K. will look different from EU regulation, will look different from U.S. regulation, and Australian regulation. And for each set of regulations, it’s quite a big process for a company to adapt to that regulation. They will first need to understand the regulation and they will need to set up processes internally, how they should ensure that they are, first of all, implementing this into all their products, but then also having a follow-up internally on this. It may also involve audits on how well they are following this regulation. Ultimately, it can mean that they would be accountable for their actions, and potentially receiving fines if they are unable to follow all of the extra regulation. So that means it becomes quite a costly set-up for them. 

It also reduces flexibility. Typically, when you impose new regulation, it means things happen slower at the company. Because every time you want to introduce a new product or change a product, you have to ensure, is this following the current regulation? You may have to get approvals from supervisors and so on. So it means that this additional step, this additional regulation, puts both additional costs, additional employees in the organization, but it also hampers this agility that these companies like to have. They like to be fast-paced and agile.

Ultimately, it will have to be a decision for these companies: How much are they willing to invest to remain within these jurisdictions where consumer protection regulations are coming in?

Especially because the companies that will already be experts at this — the incumbents, the banks — they will see that this is leveling the playing field, and they may be more interested in offering these products to their customers. 

WARREN KORNFELD: The thing to also look at is, in Europe, you’ve got to be in multiple countries, because of the size. But the U.S. consumer lenders are mostly — except for American Express — U.S.-centric. You look at Citi — retrenched and solely focused on the U.S. JPMorgan Chase has a little bit of international, more on the acquiring side than on the card side. Because it is complicated, and you have to know the market, you have to know the regulation that’s there.  

So on top of intense competition and economic challenges, the implementation of regulation could contribute to market consolidation, too? 

KORNFELD: Oh, absolutely. It’s part of that rationalization. Companies are focused on those markets in which they think they can be profitable; at this stage, larger markets. What you’ll see is — and we’ve seen it — this retrenchment from certain geographies. Now, once they get to the point of solidifying their position, getting to a profitable run rate, looking not like a fintech but looking more like an incumbent … you go to the other part of the cycle and you go back into a growth mode, you could start seeing some more growth, both in product as well as geographies, but on a slower basis.


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