Buy now, pay later: the service takes hold, but there are no rules. Here are the risks for operators and consumers

The latest fad of electronic payments via app is called Buy now, pay later: buy now, you will pay in several installments but without interest except those (if any) of arrears. According to a report by the Fidelity National Information Services, a financial services company, 8.1% of e-commerce transactions in Europe in 2021 took place using this method, but according to fintech analysts, the percentage is set to rise in the coming years. The characteristics are speed, in general the absence or almost no checks on the consumer credit history and an intuitive interface. In Italy, the launch of these services has been slower. And doubts remain about the standards that regulate them, tolegal framework service, controls and impact on savings. The risk otherwise is a total one deregulation under the pretext of innovation.

According to an investigation Pwc, 41 specialized players are already active in Europe. Their boom is driven by online shopping, but increasingly retail traders choose these payment solutions for in-store purchases. Among the apps that are gaining ground in Italy is Scalapaya “unicorn” startup (ie valued at over 1 billion dollars) which, in exchange for a (usually small) percentage of the purchase amount, “immediately pays the seller the full amount of the order” and guarantees a indemnity from the risk of fraud and missed payments. The buyer just has to pay one third of the price on the spot, while the next two installments they will be charged on a monthly basis. According to Eletto Product of the Year, the “stamp” with which consumers reward innovation and satisfaction associated with a certain product, over 3 thousand “partner” brands and 5 thousand physical stores have chosen this app.

In the buy now pay later galaxy, not all apps are the same though. There are those, like the Swedish giant Klarnais equipped with banking license and is registered withRegister of financial intermediaries. Applewhich launched Apple Pay Later, announced that it will rely on Apple Financing LLC, an in-house subsidiary currently without a US banking license. PayPal last year it launched Pay in 3 installments, which allows installment purchases from 30 to 2 thousand euros. Among the operations that the Luxembourg company is authorized to carry out in Italy are both the disbursement of loans and the issuance and management of means of payment.

Therefore, it is the legal framework of the service that becomes important, from which important consequences derive in terms of obligations and supervision. Indeed today there are no ad hoc rules in Europe. What is the cause of the contract? Which is the object? Who are the contractors ?, are the first questions that a fintech expert lawyer asks himself Luciano Quattrocchio, Professor of Insurance Banking Law and Market and Financial Brokerage Law at the University of Turin. According to him, the BNPLs are located at crossroads between two cases (but a third one looks around the corner): the loan (financing) indirect and thepurchase of a credit. If we embrace the first thesis we must think of the consumer as a borrower who pays off his debt in installments, using a credit card. In no case can we speak of consumer credit: a document of the Bank of Italy states that this implies onerousness, while in our case to pay a percentage is only the seller, in exchange for the immediate credit of the consideration.

If we embrace the second thesis, the company that owns the app buys a credit from the seller for a fee (the percentage of the purchase) and then collects it from the buyer-debtor, in installments. This solution brings BNPLs closer to collection services, that is, when a bank collects on behalf of the customer the receivables that the latter has from third parties. The third option looks to the factoring, a contract under which the factor buys packages of credits from a company, taking charge of their collection. Like the factor, apps also advance the price of credits and take on the risk of default. Not only that: the creditor becomes in effect the app and no longer the seller. This activity, as well as the indirect loan, can only be carried out by banks or financial intermediaries present in the appropriate Register of Bank of Italy. The case of credit assignments is different, which can also be carried out by other parties. After all, registration in the Register is not only an obligation and is not an end in itself: members have access to the Central Credit Register and thanks to that data they can determine if the person arranging the transactions is a reliable payer or not.

This renunciation, however, does not seem to disturb the sleep of the owners of the Italian app. In a recent interview, the founder of Scalapay stated that the rate of insolvency it is derisory, because we speak of “small numbers”. However, in the FAQ section, the company denies that there is a ceiling on transactions that can be carried out via the app and the only caution therefore seems to be an initial limitation the possibility of making purchases, destined to lapse as the consumer is credited as a good payer. In any case, the company reassures, the ability to use the app “does not depend on the financial availability of their (of consumers, ed) paper”. On the other hand, if we consider the volume of purchases (the app has over 100 thousand downloads) rather than the amount of individual transactions, it goes without saying that we are no longer talking about “small figures”. Despite the pharaonic resources on which it can count, in fact, the competitor Apple will put a roof to transactions after a verification of the users’ credit history.

In the United Kingdom the Financial Conduct Authority (FCA) found a “risk of over-indebtedness”Of consumers who use these apps, but also of the risks for operators. Moreover, the latter agree in reporting improvements in the performance of sellers who rely on Bnpl services, both as regards the “average cart” and the “conversion rate”, ie the number of users who complete a transaction.

According to an investigation by Trc Market research 76% of Italian consumers are more inclined to shop online if they can pay in installments, while 63% agree to conclude the transaction only on condition of obtaining a deferral. This figure rises to 68% among millennials and young people of the “Generation Z”. A commercial success, undoubtedly, achieved thanks to increasingly voracious consumers willing to spend “in the open”. According to other studies cited by Simone Suriano on HuffPostin fact, those who use bnpl methods tend to fund the portfolio without taking into account their own financial resources, therefore facing delays in payments (with the related interest). A few days ago theUS Consumer Financial Protection Bureau (CFPB) has announced that it will introduce rules to ensure users of these services new protections similar to those that accompany traditional credit. The authority will also focus on how data is collected and monetised, on the duration of the “loans” and on debt risks.

Without bothering who how Scott Gallowaya professor at NYU Stern School of Business, reports the risk of a new bubble, in the fence of our house, the renunciation of knowing if the user is a reliable payer is at least audacious. Not to mention that the “accurate measurement of risks” (which in the case of intermediaries registered in the Register is entrusted to the supervision of the Bank of Italy) in these cases is the prerogative of the company itself. “I hope there will be a regulatory intervention – concludes Quattrocchio -. If what the apps declare is true, in my opinion the risk is more for managers than for consumers ”.

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About Eric Wilson

The variety offered by video games never ceases to amaze him. He loves OutRun's drifting as well as the contemplative walks of Dear Esther. Immersing himself in other worlds is an incomparable feeling for him: he understood it by playing for the first time in Shenmue.

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