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Lending Briefing: BNPL regulation and the growing digital lending market

  • The BNPL market needs more regulatory oversight in order for consumers to be protected, new research suggests.
  • The fast-growing BNPL industry exists in a legal gray space and mostly consists of subprime borrowing, and pure players are yet to demonstrate profitability.

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Lending Briefing: BNPL regulation and the growing digital lending market

Grow now, regulate later? Why BNPL needs more regulation

The Buy Now, Pay Later space is growing aggressively, on track to jump 5x in two years to $100 billion in retail purchases in 2021. But to ensure sustainable growth in the BNPL sector and protect consumers, regulation is urgently needed, a new research paper led by Marshall Lux at Harvard Kennedy School suggests. 

Lux is a thought leader in financial services, with over three decades of experience as a consultant and practitioner. He also served as JPMorgan Chase’s Chief Risk Officer of consumer products during the global financial crisis. 

In his research and our conversation, Lux expressed concern about how consumers could be affected by the mostly unregulated BNPL market. 

“Without precedent, regulation, or oversight, consumers, investors, and leading credit risk managers cannot evaluate the risks of significant subprime borrowing in an unregulated industry with revenues approaching $1 trillion,” he wote

In a 2021 Credit Karma survey, around one-third of BNPL consumers had fallen behind on at least one payment – of those, 72% of respondents said that their credit scores declined as a result of missing the payments. Delinquent credit repayment rates are also substantially higher for BNPL than for credit cards: three times higher at 30 days past due and two times higher at 90 days past due. 


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