For an industry that’s typically laser-focused on frictionless services, it’s rare to hear calls for any sort of friction — let alone that it’s good for consumers who increasingly desire faster, more convenient and seamless services.
But as more and more buy now, pay later (BNPL) instruments are increasingly integrated into eCommerce checkout flows, consumer groups are advocating for some level of friction in the customer journey to keep borrowers on their toes.
“If the payment becomes invisible — totally frictionless — that’s not good from a consumer protection perspective,” Gijs Boudewijn, general manager at the Dutch Payments Association, said in an interview with PYMNTS, sharing the concerns of consumer associations.
The concerns come at a time when regulators across Europe, particularly in the United Kingdom, are moving to clamp down on irresponsible lending in the BNPL space.
This month, the U.K. government announced that it is strengthening regulation of the sector with new rules under which BNPL lenders will need to be approved by the Financial Conduct Authority (FCA) and explain their terms to consumers in a way that is “fair, clear, and not misleading.”
It’s a move welcomed by Jaidev Janardana, the CEO of FinTech firm Zopa and a new entrant into the U.K. BNPL space, who told PYMNTS that his company has already put safeguarding measures in place to ensure consumers are conscious of the level of debt they are taking on when enrolling in a BNPL scheme.
Echoing Janardana’s concern that some lenders were marketing BNPL as a lifestyle product rather than a form of credit, Boudewijn said, “There’s a limit to seducing people to buy stuff they don’t need with money they don’t have.”
Ultimately, however, he insisted that irresponsible lending is a bug, not a feature, of the BNPL model, adding that the beauty of BNPL instruments is that with the right amount of data, it provides an opportunity to properly assess the creditworthiness of a customer and their ability to pay back loans.
By giving consumers a moment to pause and consider the implications of their purchases, positive friction in the BNPL experience will ensure better consumer safeguarding and spell an end to what Boudewijn calls the “wild west” in the BNPL sector.
“Some form of friction is the mantra of consumer associations,” he reiterated, referring to ongoing discussions in Brussels around how best to regulate the sector.
Open Banking Avant La Lettre
According to Boudewijn, credit options differ across Europe based on consumer preferences, and in the Dutch context, the decade-plus eCommerce payment system iDEAL, which was created by local banks, has been hugely popular because retailers tend to prefer cheaper payments than credit card payments.
In fact, Boudewijn argued that the real-time, instant bank-to-bank transfer system was ahead of its time, calling iDEAL “open banking avant la lettre” and part of the reason why the Netherlands has been at the vanguard of the European payment system.
He said even when the Revised Payment Services Directive (PSD2) went into force and opened up the payment accounts to third parties through payments initiation, the general perception was that it was going to be the end of iDEAL.
“But of course, it was a gross underestimation,” he said, noting that even though open banking offers customers access to a similar account-to-account payment method, the iDEAL brand, “at least in the Dutch context,” is the strongest financial brand that consumers are still accustomed to.
As an early adoption of instant payment rails, which he describes as the “new normal” for Dutch citizens, Boudewijn also pointed to the effect it has had on the country’s cash usage — the lowest in the Eurozone — as another area where the Netherlands leads the European Union pack.
Having the lowest cash usage in the region also means having the highest debit at the point of sale, especially contactless debit, he noted. Eighty-one percent of payments are made by debit cards, of which 85% are contactless, mostly paid with the physical card but increasingly through mobile phones.
As Boudewijn said: “I never use my desktop for internet banking anymore. As far as my financial businesses are concerned, I live on my smartphone or in my mobile banking app and do everything there. It’s a very rich functionality.”
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