‘Buy Now, Pay Later’ Group Affirms Support for Harder Rules for ‘Wild West’ Markets

The CEO of US consumer lender Affirm told the Financial Times the ‘buy now, pay later’ credit industry would benefit from more regulation to help standardize an increasingly crowded market.

BNPL has gained popularity during the pandemic by offering customers the option to pay for online shopping in installments. This helped fintech like Affirm reported triple-digit balance sheet growth as many traditional lenders struggled to expand their loan books.

Affirm offers loans with interest rates ranging from 0 to 30%, with no additional fees. Max Levchin, who founded the business in 2012, said he would support regulatory action to improve information disclosure and eliminate “hidden” fees such as late payment fees and transaction fees.

This will help make an industry that is already a “wild west” on the fringes more mainstream, he added.

“I don’t think it’s great for a consumer to use one of those products and say, ‘Oh, so I tried this BNPL thing, I thought it was 0% but it’s not because I get a starter fee. this source,” Levchin, who is also a co-founder of PayPal, told the FT.

Earlier this month, Affirm reported that its most recent quarter revenue was up 55% year over year to $174 million. It also expanded its partnership with Amazon.

At the same time, its loss for the quarter increased from $3.9 million the year before to $306.7 million, after it eased credit requirements.

The company considers itself a high-growth tech company, Levchin said, and “in that world, we’re comfortable being a loss-making business.”

He believes that BNPL’s growth will continue in part because it is a new online payment method and is still used in only a small fraction of transactions.

“If, in five years, we are not the leader in our space and we no longer have the edge, we will have to replace it. Then drop a little tear for us and move on,” Levchin said. “But if we keep getting better, I don’t think we have to worry too much.”

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The rise in popularity of BNPL has encouraged Affirm list in the US This year. Its market cap is around $33 billion, more than 10 times its valuation in a 2019 private funding round.

The sector is very lightly regulated compared to other consumer lending, but regulators are starting to worry about the safety of the market and the potential for harm to consumers as it develops.

Affirm prides itself on transparency with customers. It’s one of the few major BNPL providers that doesn’t charge late fees, and although loan disclosure rules on credit costs don’t apply to most short-term BNPL loans, Affirm said it did Provide information.

It is also one of the few BNPL providers that shares data with credit scoring agencies such as TransUnion and Experian. Levchin thinks relationships with consumer credit bureaus can be mutually beneficial.

He added that how small transactions often associated with BNPL will affect credit scores remains an open question for the industry, adding that some competitors have not reported the information. for credit bureaus.

“I don’t think that’s the right way to do it,” he said. “It’s something that absolutely should be there to protect all parties and help people build credit.”

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