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How High Street Banks May Benefit from Incoming Buy Now, Pay Later Regulation

(London, UK): Incoming FCA regulation could add restrictions on how consumers can use Buy Now, Pay Later (BNPL) services, but these changes may be welcome. According to Auriemma Group’s latest issue of Cardbeat UK, there was an 80% increase in negative experiences with BNPL plans between September 2020 and July 2021.

The increase is uniform across customer segments, including different age groups, household income, and levels of familiarity with BNPL, signalling concerns around the product itself, rather than new or unfamiliar user experiences.

“Our research shows that the few who have negative BNPL experiences most commonly attribute it to unexpected fees or issues it’s created for their other finances,” says Will Moody, Manager at Auriemma. “With a growing segment of consumers turning to BNPL options for borrowing, regulation may play a role in maintaining positive customer sentiments for the product.”

Auriemma’s latest findings show an increase in negative experiences using BNPL or instalment plans–from 5% in September 2020 to 9% in July 2021. While 9% remains the minority, it represents a large community when considering that 17 million UK consumers have used BNPL services as of November 2021.

“This sentiment is being reflected within other markets too,” says Moody. “In the US, a market where over half of adults have used a Buy Now, Pay Later service, about one-third had a negative experience. This rapid growth has caught the attention of the CFPB, and surprisingly enough, half of BNPL users in the US agree these plans should be more regulated.”

Klarna is the leading BNPL and instalments provider in the UK with 16 million customers using its products and services, but the Swedish FinTech reported a round of substantial losses in H2 2021 to add to the strain of incoming regulation.

Many of the UK’s High Street Banks and lenders already have products in market, such as NewDay with its NewPay product. Moreover, regulated FinTechs such as Monzo and Curve also joined the BNPL space in 2021, with Revolut soon to follow.

“Auriemma expects that BNPL regulation will put significant strain on compliance resources for unregulated players such as Klarna,” says Louis Stevens, Director of Roundtables. “This, in turn, could impact innovation, development and growth, opening the door for regulated lenders such as High Street Banks and credit card issuers to step in.”

Could the future of BNPL in the UK rest with traditional players integrating instalments into their existing product sets? And will this be the solution to reversing the rise in poor customer experience? Auriemma Group will continue to monitor and discuss BNPL in upcoming Cardbeat studies, and within its Customer Service Roundtable groups when they next meet June 16-17 at the Sheraton Grand in Edinburgh, Scotland. Email research@auriemma.group to learn more about our consumer studies and roundtables@auriemma.group to inquire about our forums.

Survey Methodology

These Auriemma Research studies were conducted online within the UK by an independent field service provider on behalf of Auriemma from in September 2020 and July 2021, among 80o+ adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.

About Auriemma Group

For more than 35 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.auriemma.group or call Will Moody at +44 (0) 207 629 0075.

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Challenging Transition Ahead for Lenders as HMT Breathing Space and Payment-Holiday Conclusions Near

(London, UK) Collections Departments faced unprecedented challenges throughout the COVID-19 pandemic, from embracing remote working to managing significant payment holiday volumes. And now, they must take action on HMT Breathing Space while transitioning from payment holidays. Auriemma Group’s Collections and Recoveries Roundtable has been discussing these events and their corresponding strategies amongst the UK’s top financial institutions. These two deadlines are quickly approaching, and along with the unpredictable macroeconomic environment, lenders must leverage learnings from the last year to prepare for the likely spike in volume ahead.

“Payment holidays have been the primary focus since the beginning of the pandemic, but with the extension of support schemes, that has now switched, and priority is on HMT Breathing Space,” says Louis Stevens, Director of Roundtables at Auriemma Group. “However, the payment holiday conclusion date is looming, which could mean a significant strain on Collections teams.”

In 2020, lenders quickly learned the need for automation and additional headcount to manage volume spikes, and they are now applying these learnings to prepare for the coming months. On average, lenders intend to increase their collections teams by 42% throughout 2021. Additionally, 86% of lenders have invested in their automated decisioning and digital channels to prepare for volume spikes.

Are Lenders Prepared for HMT Breathing Space?

On 4th May 2021 HMT Breathing Space (Debt Respite Scheme) will go into effect, giving consumers in problem debt the right to legal protections from their creditors. The Debt Respite Scheme has two paths: either through “standard problem debt” or through “a mental health crisis” referral. During this moratorium, lenders cannot communicate with customers and must stop interest from accruing.

According to Auriemma Group’s Collections and Recoveries Roundtable, as of April 1st,69% of lenders indicated that they feel somewhat prepared for the regulation, and the remaining 31% still feeling somewhat unprepared. There are a number of remaining concerns affecting preparedness, including the delay of the creditor portal, ambiguity in the regulation and unknown volumes.

To try to estimate the volume of customers who could potentially enrol in the scheme, lenders are utilising data from payment holidays, debt-advice charities and usage rates of other types of breathing space (e.g., CONC). They are also slightly increasing forecasts due to the worsening economy, payment holiday conclusions and the ceasing of furlough programs.

38% of lenders have already, or are planning to, increase their teams due to HMT Breathing Space. Initially, most lenders will use a combination of manual and automated processes to manage the regulation with the hopes of further automating as they get a better grasp on volumes.

How Will Payment Holiday Conclusions Affect Operations?

Although the deadline to enrol in payment holidays was 31st March, consumers have the option to extend their payment holidays until 31st July as long as it is within their six-month allowance for both secured and unsecured products. The number of customers returning to contractual payments after a payment holiday has remained strong; however, 92% of lenders are anticipating an increase in delinquency volumes following the conclusion of payment holidays.

“The primary watchout is the cohort of customers working in particularly hard-hit sectors, such as travel, tourism and food service. As the support ends for these sectors, we could see significant increases in delinquency volumes as many of these businesses are currently overstaffed,” says Stevens. “The magnitude of volume is contingent on the ability of the economy to bounce back and if predictions, such as the travel boom, come to fruition.”

Customers needing additional support will likely look to long-term forbearance plans, which have caused lenders to focus their attention on that process. Investments have been made in streamlining income and expenditure assessments and digitising the forbearance enrolment process as well as increasing the size of Vulnerable Customer teams.

Auriemma Group’s Collections and Recoveries Roundtable is tackling these challenges head on through our executive meetings, workshops and benchmarking exercises. Within the next three months, the group will be meeting six times with two sessions dedicated to HMT Breathing Space. If you are interested in attending any of these sessions, please reach out via roundtables@auriemma.group.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, call Louis Stevens at +44 (0) 207 629 0075.

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