Wednesday, June 22, 2022
Within days of Apple's BNPL news, PayPal launched its latest BNPL play: PayPal Pay Monthly. It is intended for purchases between $200 and $10,000 that get paid down in monthly instalments. Terms range between six and 24 months at annual percentage rates ranging from 0 percent to 22.99 percent, PayPal said.
PayPal joined the BNPL movement in 2020 with an offering it calls Pay in 4. With Pay in 4, consumers pay off purchases in four equal payments across six weeks, with zero interest and no fees. PayPal also offers Easy Payments, a PayPal credit card feature that can be used to divide the total cost of purchases into equal monthly installments.
According to PayPal Vice President Greg Lisiewski, 22 million PayPal customers have used its pay later offerings. "Pay monthly builds on our commitment to deliver leading payment solutions that offer customer choice to ensure checkout matches their needs and budgeting preferences," he said.
BNPL began appearing as a payment option at online stores in 2019 and really took off with ecommerce sales during the height of the COVID-19 pandemic. But it is not a new concept. Merchants selling big-ticket items, like furniture, have offered similar payment plans—such as six months same as cash—for decades.
A new report from the Federal Reserve Bank of Philadelphia suggests that while BNPL has been gaining steam, usage is "largely experimental." A 2021 survey of 2,070 consumers, released by the Philadelphia Fed on June 17, 2022, found 31 percent had conducted one or more BNPL transactions over the previous 12 months. By comparison, 92.2 percent had used credit cards and 87.2 percent had used debit cards in the previous 12 months.
BNPL users were a less satisfied lot than credit or debit card users, and even those reporting using person-to-person payments. Just over two-thirds of BNPL users (68.5 percent) reported high satisfaction with the product By comparison, 81.1 percent of credit card users and 75 percent of debit and P2P users reported high rates of satisfaction with those payment choices. Only 53.2 percent of BNPL users said they were likely to used the product in the future. The Philadelphia Fed survey suggests BNPL is especially popular among lower-income consumers—those earning less than $75,000 annually.
The rise of BNPL schemes has not escaped the notice of regulators. In the United Kingdom, for example, regulators have proposed rules addressing the advertising of BNPL products and steps providers must take to ensure consumers can afford the loans.
In the United States, the Consumer Financial Protection Bureau put lenders on notice that it is "monitoring" the market. Late last year, the agency sent letters to leading BNPL providers seeking detailed information on consumer debt accumulation, data harvesting and compliance with consumer protection laws.
More recently, the CFPB said it wants lenders and credit bureaus to be more upfront about consumer experiences with BNPL. In a June 15 blog post, CFPB Senior Fellow Martin Kleinbard and Laura Udis, a program manager at the bureau, noted that the three major credit reporting companies—Equifax, Experian and TransUnion—disclosed plans to accept and incorporate BNPL payment information.
However, they wrote, "plans vary, and the bureau is concerned that this inconsistent treatment will limit the potential benefits of furnished BNPL data to consumers and the credit reporting system."
Kleinbard and Udis added that the bureau wants lenders to furnish both positive and negative data on consumer BNPL loans, and to standardize how these loans are reported. "Furthermore, consumer reporting companies should incorporate the BNPL data into core credit files as soon as possible to ensure that BNPL data are accurately reflected in consumer reports," they wrote.
The blog post added that the CFPB will continue to monitor the market, and "revisit this issue as part of a broader report on the industry" that will incorporate requested information from BNPL providers and public comments. 
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