Buy now, pay later (BNPL) dominated consumer finance news last year; this year seems likely to intensify both regulatory scrutiny and the format's incorporation into the more orthodox short-term lending ecosystem. Now ratings giant Equifax has announced that it will be factoring BNPL-related loan behaviour into its calculations. That development should assist credit-history building for compliant consumers who are choosing the likes of Afterpay and Affirm over more traditional lenders as well as affording lenders a better picture of borrowers' repayment tendencies and abilities. However, accommodating such information would seem to call for an evolution in how credit rating agencies arrive at their conclusions, given that a borrower, typically on the younger side but not always, could have several overlapping loans as well as taking on repayment terms that are relatively brief. Competitor TransUnion is reportedly also working on ways to report credit impacts of the tearaway sector.
Just before the recent holiday break, a newly empowered Consumer Financial Protection Bureau (CFPB) asked pay-later firms to disclose data on their products and practices, an unprecedented move in the United States, where the consumer watchdog was effectively mothballed for the four years of the Trump presidency: "The consumer gets the product immediately but gets the debt immediately too," the bureau's director, Rohit Chopra, said, with his team citing concerns around "accumulating debt, regulatory arbitrage and data harvesting".
The success of bank-backed money transfer app Zelle and the popularity of rival Venmo from PayPal has meant that smaller banks in the United States have been somewhat off the pace when it comes to smartphone-based payments solutions. Now, with the planned launch of a new in-app service called Chuck, a consortium of community banks is hoping to boost their own apps' functionality not only to catch up with but in fact outperform the market-leading pair of P2P apps (as well as Square's prominent contender, CashApp) through offering an open-loop alternative that can send funds anywhere, whether inside or outside the new network.
According to one bank executive involved with the consortium, "Our focus includes support for faster payments rails like The Clearing House's RTP and eventually FedNow". Real-time payments are becoming a hot topic in American banking, as banks wean themselves off overdraft fees that have become a potential liability politically and look to gain market share on the basis of consumer-satisfying digital services.
The new year too promises dramatic developments in the world of Central Bank Digital Currencies (CBDCs): this week the most important one to date, the e-CNY or digital yuan from the Chinese central bank, has taken some big steps. With next month's Winter Olympic Games fast approaching, bringing with it a global spotlight on China and, Covid restrictions allowing, an influx of overseas spectators, the e-CNY app has been added to both the Apple and Android app stores. Although the apps are closed to consumers outside of China and remain in an R&D pilot testing phase that confines transactions to ten population centres, the move opens up the digital fiat currency to many more users. Perhaps even more importantly, the e-yuan is now also available for spending on domestically ubiquitous Chinese super-apps WeChat Pay (from Tencent) and Alipay (Ant Financial). Even though Chinese online platforms are closely controlled, Beijing cannot replace this P2P duopoly in one fell swoop, making this hybrid approach necessary for now.
Meanwhile, on the other side of the globe, the Caribbean nation of Jamaica is planning to roll out its own CBDC by the second quarter, with specialist fintech eCurrency Mint having powered the digital currency's sandbox phase; the Dublin-headquartered firm has also worked on digital money projects in the Philippines, Indonesia and Senegal.
To end, here are links to some other stories of interest this week...
Australia, NZ: Latitude makes $242m bid for Humm's BNPL business
Indonesia: New payments system launched
Italy: Worldline completes the acquisition of Axepta Italy
UK: China's Tencent takes stake in digital bank Monzo
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