Credit Management issue April 2021

OPINION
AUTHOR – Aneesh Varma
The impact of these changes is being seen
internationally, most recently in Australia,
where the AFIA have confirmed their
intention to launch a BNPL ‘Code of Conduct’
to better regulate the sector by ensuring
a minimum standard is met across the
industry. Once again, where UK regulation
leads, others follow.
CONSUMER BENEFITS
Yet amid the noise of the lending community,
it’s important we remember the intended
beneficiary here: the consumer. Few
BNPL customers today will be aware of the
planned changes to how this new service
that has shifted their shopping habits
so much in recent years is set to evolve.
Regulatory intention or sector enthusiasm
doesn’t protect consumers. It doesn’t stop
people from taking on unaffordable debt and
spiralling into financial difficulty. So what
now?
BNPL customers are
younger than those typically
taking on credit (a quarter
are under 24 years old) and
three quarters are female.
The average transaction
value is £70, with fashion and
footwear the most popular
purchase categories.
For BNPL lenders, attention now turns
to implementation. With the FCA making
it clear that they won’t be providing a
prescriptive approach, the responsibility will
come down to each lender to interpret the
rules appropriately.
The implementation of affordability
checks for any lender requires a difficult
dance between friction, accuracy and cost
– the achievement of one likely to be at the
cost of either of the others. But for BNPL
lenders, the compromise is likely to be even
more pronounced. With exceptional user
experience key to the growth of these brands
to date, affordability checks will need to be
as smooth as these companies’ advertising.
BNPL providers are unlikely to be anything
but exacting.
We refer to this balance in credit as
‘thoughtful friction’. To meet the needs of
today's consumer, affordability assessments
must be seamless and intuitive. Information
must be gathered dynamically from the
consumer and in real-time. Anything less isn’t
good enough. We must allow the consumer
to represent themselves fairly in the process
and to be heard. That is the responsible thing
to do. Yet more fundamental than consumer
experience, at the heart of the issue sits the
data. Stressed in the detail of The Woolard
Review is the importance, for both lenders
and for the public, of timely access to high
quality credit information. Confidence in the
‘big three’ in providing this is in doubt. BNPL
lenders have stated already that the rate of
change will be driven by the speed at which
the traditional credit bureau can help, with
legacy infrastructure cited as a significant
blocker. Slow pace and legacy systems will,
Klarna has made clear, hamper their ability
to reform. The timeline for implementation,
says Klarna, rests with the bureau.
TIME TO ACT
But BNPL lenders must act. And with it,
the opportunity for lenders in assessing
alternative, more nimble options to better
stand up to the regulation sharpens. Once
again, the importance of the individual in
improving their own credit story builds. If
the traditional credit bureau can’t help fast
enough, it’s time for lenders to consider the
fintechs that can.
This new regulation also provides lenders
with the opportunity to rethink their
engagement and relationships with their
customers. Post-pandemic recovery will take
time. Lenders must rebuild their confidence,
in accordance with this new regulation. How
can they do this? With real-time affordability
solutions that return the consumer to the
heart of their own credit story.
Once again, the regulator has caught up with
the innovation. It’s now up to all of us to make
sure that the true winners of this outcome
remain the consumer. And if lenders can take
time to understand who their customers are
now, we all stand to benefit from fairer, more
personalised, more affordable credit in the
future.
Aneesh Varma is Founder and
CEO of credit fintech, Aire.
Advancing the credit profession / www.cicm.com / April 2021 / PAGE 13