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Visa? Credit card? No - buy now pay later please!

20 September 2019. Published by Jeremy Drew, Partner and Joseph Akwaboa, Trainee Solicitor

As online customers make their way to checkout, a growing number of retail brands are offering them the "Buy Now and Pay Later (BNPL)" option along with the classic, Visa and Credit Card and PayPal payment options.

Buy Now, Pay Later

 

Buy Now Pay Later allows customers to delay purchases or pay by instalments, typically giving them 14 days, 30 days or a month to pay for their product.

Approvals are based on a "real-time" risk assessment algorithm based on a soft credit check. Providers tend to ask for personal details, such as an email address, postcode and date of birth which can then be used to check if the customer has had any repayment problems with either itself or other retailers and, if not, credit is likely to be approved within seconds.

 

Providers of this option fill a gap between credit cards and store credit (which may require a stronger credit rating and a lot of paperwork), while providing consumers with "quick" access to credit.

 

Consumers will be liable for delayed payment fees for non-payment which may affect a customer’s credit score, accounts may also be passed to debt collection agencies (usually 120 days after initial deadline).

 

We understand that providers make their income from service fees paid for by the participating companies, usually a 3.2% merchant fee.

 

Klarna

 

One big name, Klarna, is the Swedish payment service provider that provides fee-free payment options to shoppers as part of their checkout experience on some major online shopping websites. Klarna's website states that it is accepted by over 4,000 UK retailers. 

As Klarna's Chief Commercial Officer, Michael Rouse said in a statement "the demand for personalised shopping and ease of transactions are no longer trends in retail – they are now requirements".

 

Klarna's primary service allows users to pay for items up to a month after they've bought them; a service it claims comes with no interest rates, fees or charges, or formal credit applications.

 

Klarna has now reportedly become the largest private FinTech firm in Europe with an estimated value of £4.5bn. It's said to boast 4.4m active UK users, process1 million transactions per day and says it is on track to make $1bn in annual revenue.

 

Partnering with a BNPL provider?

 

Retailers should consider the following when considering offering the BNPL option:

 

  • Simplicity: Ensure a simple process for the customer – particularly ensuring the online or app process is easy  and speedy to use;

     

  • Understanding: Understand how the provider's BNPL offering works, both from a customer perspective and 'behind the scenes' and cover off the risk areas in your contract with the provider;

  • Transparency: Due to new FCA rules (which will be in force by 12 November 2019), retailers have to provide information to consumers about BNPL offers which is more detailed than under previous laws. The information should be balanced  and appropriately reflect the risks (for example, including the circumstances in which customers could have to pay interest and how this interest would be calculated if those circumstances arose) as well as the benefits of the product; and
  • Data protection: There are a range of compliance requirements with on-boarding a new payments provider. For example, an analysis should be carried out early on to understand whether the BNPL provider is processing personal data on the retailer's behalf or is a data controller itself.  Depending on the outcome, relevant GDPR contract wording will need to be in place between the parties, with sufficient controls and systems in place in the event of a data breach or data requests from individuals.