CFPB reports market research of BNPL fintech
What better distraction is there from wedding planning than a breakdown of the Consumer Financial Protection Bureau’s (CFPB) market report on BNPL lenders and products? The CFPB recently filed a market report summarizing data collected, following the issuance of market monitoring orders in December 2021 under its authority found in section 1022(c)(4)(B)(ii) of the Dodd-Frank Act. The report, issued in September, reviewed market practices and identified benefits of Buy Now, Pay Later (BNPL) loans “over legacy credit products” as well as risks posed to consumers who use BNPL products. The report reviewed the practices of BNPL companies that fit a specific definition. The CFPB defined BNPL products as either “pay-in-four” or “split pay” products, meaning “a four-installment, no-interest consumer loan, typically with a down payment of 25 percent and the remaining three instalments due in two-week intervals. The CFPB excluded point-of-sale installment loans and post-purchase credit card installment plans from this definition. In addition, the CFPB acknowledged that its market report is not comprehensive and may have several limitations. For example, the market report covers only the pay-in-four products and is focused on what the CFPB calls the pure players: nonbank tech companies that offer BNPL.
Consumer Metrics
The report first explored BNPL lenders’ practices such as customer acquisition models and underwriting requirements. The BNPL lenders that were the focus of this market report acquire customers through what the CFPB calls the “merchant partner acquisition model” and the “app-driven acquisition model.” The merchant partner acquisition model permits “lenders [to] sign contracts with specific online retailers to embed their product on the retailers’ checkout pages.” On the other hand, an app-driven acquisition model gives consumers access to “a virtual shopping mall of merchants to patronize…along with a purposed credit amount provided by the lender.” During the customer acquisition process, BNPL applicants are asked to provide their name, address, phone number, email address, and date of birth, with some lenders asking for the last four digits of applicants’ social security numbers. Several BNPL lenders also use consumer credit profiles and credit scores as part of the underwriting process. However, the market report highlights that some commentators have complained that most BNPL underwriting processes do not have other traditional calculations such as ability to pay.
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