The number of U.S. citizens in serious debt is frightening, and the U.S. is notoriously behind on forward- thinking regulation for fintechs. The amount of debt American citizens owe is nearing the highest level in the nation's history.
People can unintentionally put their financial health at risk by using unregulated services that offer Buy now, pay later. Some providers will penalize consumers up to 25% of their purchase for late payments. A Credit Karma study shows that many consumers end up with lower credit scores after using unregulated services.
The proliferation of smaller BNPL providers that don’t follow responsible lending best practices will slow down due to new regulatory barriers.
The right set of regulations will resolve the issue and allow banks to enter and become leaders in the arena.
The Consumer Financial Protection Bureau is keeping an eye on consumer credit products. Major players Affirm, Afterpay, Klarna, PayPal, and Zip were asked to provide insight into the risks and benefits of their products.
Policymakers will discover that many of the providers need to make more progress regarding customers' financial well-being, because they have positioned themselves as the driving force for financial inclusion. It is possible to ensure that with regulation.
The ramifications will be immediate even though regulators will take some time to reach conclusions.
We expect this:
The right set of regulations will show that fair and responsible lending goes hand-in-hand with accessible and affordable consumer financing.
The playing field will be level in the long term as a result of the regulation probe. There is a need for BNPL, and it is possible to scale these offerings throughout both in-store channels and e-commerce sites. Traditional lenders and banks, which already offer services that adhere to reporting protocols, can now also flourish with technological partnerships.
By partnering with a provider, banks can deploy solutions that benefit both merchants and consumers. Merchants could increase sales and average order value by offering white-labeled BNPL options from banks. Consumers will benefit from high acceptance rates. Leading banks and lenders offer the most competitive loan programs.
Let's look at which countries are on the right track. The U.K. was one of the first to regulate. The Woolard Review published by the U.K.'s Financial Conduct Authority (FCA) in early 2021, which explained the need to regulate the BNPL industry, did not lead to a new regulatory regime for unregulated products.
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