The ‘buy now, pay later’ credit industry will benefit from more regulation to help standardize an increasingly crowded market, the CEO of US consumer lender Affirm told the Financial Times.
BNPL rose in popularity during the pandemic by offering customers the option to pay for online shopping in installments. It helped fintechs like Affirm reports triple-digit balance sheet growth while many traditional lenders have struggled to expand their loan books.
Affirm offers loans with interest rates ranging from zero to 30 percent, with no extra fees. Max Levchin, who founded the business in 2012, said he would support regulatory action to improve disclosure and eradicate “hidden” charges such as late payment and transaction fees.
This will help make an industry that is a “wild west” on the edge more mainstream, he added.
“I do not think it’s great for consumers to use one of those products and say: Oh, so I tried this BNPL thing, I thought it was zero percent, but it was not because I got this origin fee did not, “Levchin, who was also a PayPal co-founder, told the FT.
Earlier this month, Affirm reported that revenue in its most recent quarter rose 55 percent from $ 174 million last year. It has also expanded a partnership with Amazon.
At the same time, its losses in the quarter rose $ 3.9 million a year earlier to $ 306.7 million, after easing credit requirements.
Levchin said the company considers itself a high-growth technology company and “in that world we are very comfortable running a loss-making business.”
He believed growth in BNPL would continue in part because it was a new payment method online and was still used in only a small fraction of transactions.
“If we, five years from now, are not the leader in our space and we no longer have the advantage, we will be relocated. Then shed a small tear for us and move on, ”Levchin said. “But if we keep getting better, I do not think we have too much to worry about.”
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The increase in popularity of BNPL has encouraged Affirm to list in usa this year. Its market capitalization is about $ 33 billion, more than 10 times its valuation in a 2019 private fundraising round.
The sector is very lightly regulated compared to other consumer loans, but regulators are starting worry on market safety and the potential for consumer harm as it grows.
Affirm prides itself on being transparent with customers. It is one of the few large BNPL providers that does not charge late fees, and although lending disclosure rules on the cost of credit do not apply to most short-term BNPL loans, Affirm said it provided the information anyway. .
It is also one of the few BNPL providers to share data with credit rating agencies such as TransUnion and Experian. Levchin said relationships with consumer credit monitoring agencies could be mutually beneficial.
How the small transactions typically associated with BNPL should affect credit scores remains an open question for the industry, he said, adding that some competitors did not report information to credit bureaus.
“I think that’s not the right way to do it,” he said. “This is something that absolutely must be there to protect all parties and to help people build credit.”