Barclays supports buy now / pay later fintechs such as Klarna which have grown rapidly in the UK by offering short term, interest free installment loans to consumers. And Amazon is indirectly linked to the effort.
Barclays is would have working on a partnership with Amazon to offer interest-bearing installment loans to UK customers of the e-commerce giant. Barclays has been offering interest-free installment loans for iPhones with Apple UK since 2019.
And Barclays has appointed Antony Stephen, former director of Amazon Payments Europe, as CEO of Barclays Partner Finance, which provides UK consumers with point-of-sale financing and installment loans for higher-value purchases such as renovations and furniture. In 2020, the division funded £ 2 billion in purchases from major retailers such as Wayfair.co.uk, Homebase and British Gas.
Stephen’s appointment signals Barclays’ focus on lower value installment products. As of November 2020, Barclays has offered interest-bearing installment loans at the cash desk for purchases over € 100 on the German Amazon site Amazon.de.
Stephen, who managed a $ 50 billion portfolio of payments products at Amazon Europe, including installment loans, aims to grow Barclays’ point-of-sale finance business in the UK. He reports to Ruchir Rodrigues, head of Barclays Cubed and Consumer Bank Europe.
“We are actively expanding our offering by partnering with some of the UK’s largest retailers,” Rodrigues said in an emailed statement to American Banker.
The bank also recently launched Barclays Cubed, a business initiative that includes tiered point-of-sale financing for retailers. Barclays Cubed will allow merchants to digitally connect with consumers by offering them discounts through the Barclays mobile banking app.
“The consumer can then make a purchase on the merchant’s website and, if they wish, we can instantly authorize them to pay for their purchases in installments,” said Jes Staley, Managing Director of Barclays, in a statement. presentation to investors in April.
The shift to BNPL in the UK from traditional loan and payment products is more evident among younger consumers who are accustomed to a mobile-centric customer experience. While Barclays already has a significant number of merchant relationships through its acquisition activity and long-standing Barclays Partner Finance point-of-sale financing operation, its challenge is to live up to the ease of use offered by BNPL companies’ applications.
A July 2021 survey by Bain & Co. found that 49% of UK online shoppers aged 25 to 34 said they used BNPL while 51% used credit cards (respondents could select multiple responses). Among respondents aged 18 to 24, 42% used BNPL and 31% used credit cards.
“BNPL is being adopted by consumers who want flexibility in payments,” said Marwan Forzley, CEO of B2B payment processor Veem. “For merchants, BNPL means accessing new types of customers and higher cash conversion rates, which is why they finance BNPL loans.
As Barclays turns to lower value installment loans, BNPL players are expanding into higher interest rate loans, currently in the realm of banks and consumer credit providers.
But regulation could weigh on all of these companies’ growth plans.
Laws of the country
Under current UK consumer credit law, BNPL providers can offer short-term, interest-free installment loans, where funding is provided by merchants, without BNPL providers being regulated as providers. consumer credit. This means that they are not required to perform credit checks or report BNPL loans to the credit bureaus. The flexible credit checks and instant decisions of BNPL companies have been an important factor in their growth.
The Financial Conduct Authority, the UK’s financial services regulator, plans to introduce BNPL regulations to address concerns about potential consumer debt.
The Treasury, the UK government’s finance department, launched a stakeholder consultation in October 2021 on the scope of FCA’s buy now / pay later regulations. The FCA will then conduct a further consultation before introducing regulations by 2023. These should include requirements for consumers to have adequate protections and to receive sufficient information about their payment choices when presented with them. BNPL offers.
Meanwhile, BNPL providers can apply for UK consumer credit licenses from the FCA.
“Zip is applying for a UK consumer credit license so it can offer installment loans for higher purchases and potentially charge consumer fees, as are other UK BNPL providers,” Anthony said. Drury, UK Managing Director of Zip, which is based in Australia.
Klarna UK already offers FCA regulated interest bearing long term loans for high priced purchases as well as unregulated short term interest free BNPL loans. It acquired UK point-of-sale finance provider Close Brothers Retail Finance in 2018, and its subsidiary Klarna Bank, which is licensed in Sweden, is regulated in the UK by the FCA.
As of August 31, 2021, Klarna UK’s customer base has grown 40% year-on-year to 15 million and its retailers by 90% to 16,000, said Alex Marsh, director of Klarna UK.
Banks vs fintechs
UK banks such as HSBC and NatWest have launched installment loan options on their credit cards, and in September 2021 UK neobank Monzo launched installment loans for its debit cardholders. But, as these banks do not have point-of-sale financing agreements with retailers, their installment card loans can only be set up after purchase through customers’ banking apps.
In contrast, BNPL providers integrate directly with e-commerce sites, allowing them to enroll customers who click their BNPL button on the checkout page. “Once we’ve created a new client, we encourage them to download the Zip app,” Drury said. “We can then provide them with promotions from our marketing partners as well as offers, rewards and cash back. “
For merchants, BNPL aims to access new types of customers and higher conversion rates at checkout.
Marwan Forzley, CEO of Veem
Zip, which launched in the UK in March 2021, currently has a monthly UK fulfillment rate of AU $ 8 million, Drury said. “We act as a credit card replacement, primarily for customers in their early 30s who make purchases worth £ 100 to £ 120,” he said.
Clearpay, a subsidiary of Australia-based Afterpay, entered the UK in 2019. “We currently have over 2 million customers and 6,000 merchants in the UK,” said Rich Bayer, Country Director of company in UK. “95% of Clearpay customers in the UK use debit cards to make their installment payments. “
UK-based DivideBuy, which offers interest-free installment loans for higher priced purchases, secured a £ 300million loan facility from Davidson Kempner Capital Management in September 2021.
“DivideBuy has 500,000 account holders who use interest-free, term credit with fixed monthly payments as an alternative to credit cards,” said Jo Balsamo, Marketing Director of DivideBuy. “More than 500 retailers offer DivideBuy as a payment option at their online checkouts. “
So far in 2021, DivideBuy has added 57 more retailers, reached £ 150million in gross merchandise value and is expected to reach £ 175million by the end of 2021, Balsamo said.