This week in lending: 2021 BNPL results, credit markets poised for growth this year

Our Lending Newsletter covers the intersection of lending, banking and fintech, exploring the main developments in the market and bringing forward the most relevant data points. Subscribe now to stay in the loop on everything that's happening in lending, credit markets, BNPL, and more.

Buy Now, Pay Later is undoubtedly growing as the preferred e-commerce payment mode, and so is the appetite for more growth from the fintechs in the sector. 

The BNPL market is expected to grow by 181% and account for 13% of all global e-commerce payments by 2024, according to the 2021 Global Payments Report by Worldpay from FIS. By 2025, BNPL leaders such as Afterpay, Affirm, Klarna and PayPal are expected to process $650 billion to $1 trillion in transactions.

But aggressive growth doesn’t necessarily mean healthy growth, and investors are closely monitoring the underlying performance of these businesses. 

Recent results disclosures revealed potential warning signs for the future, signaling that confidence in the BNPL sector might be dwindling.

-- Iulia Ciutina

The latest briefing

Lending Briefing: 2021 BNPL results, C&I lending picking up again

US BNPL players may be pursuing aggressive growth strategies, but their underlying performances are beginning to surface some concerns in the market.

In this week's Lending Briefing, we dive into recent developments and 2021 results disclosures at Affirm, Klarna and Zip to get a better sense of what's happening under the hood at some of the biggest BNPL players in the US.

Underlying credit quality could become an issue going forward for the pure players in the industry. While BNPL is flourishing as a market, it’s also about to get even more crowded than it already is. With traditional card issuers and processors adding BNPL to cards at POS this year, 2022 will bring more competition in US markets.

Our top stories

How non-prime risks are driving the growth in consumer credit, in 4 charts

The consumer credit market is showing more signs of healthy expansion, with record numbers of originations for credit cards and personal loans in Q3 2021. This has been partly driven by subprime segments, as lenders have become more comfortable serving this category due to record low delinquency rates.

Quick take: How the pandemic changed commercial banking

The commercial lending market has changed throughout the pandemic, as supply/demand imbalances and macroeconomic factors caused narrowing margins. The pandemic forced banks to speed up digital processes in their commercial segment as businesses were forced to conduct their operations online.

‘Change is hard for banks’: Behind Amount’s acquisition of Linear

Amount, a banking technology provider offering account opening, loan origination and BNPL financing solutions, is acquiring SMB loan and account origination platform Linear for $175 million. The acquisition complements Amount’s consumer banking solutions with Linear’s technology for the commercial segment.

Topic spotlight: Fraud in financial services

Fast approval fertile for stolen and synthetic identities: BNPL’s fraud problem

BNPL fraud rate grew by 66% YoY between 2020 and 2021. The ecosystem’s fast-approval loans, coupled with speed-oriented identity verification mechanisms and loose credit checks, have set the stage ripe for such activity. The most prevalent methods of fraud in the industry are account takeovers and synthetic identity fraud.

Fraud is becoming the biggest headache in financial services

With consumers continuing to take a digital-first approach to everything from shopping to dating and investing, fraudsters are finding new and innovative ways to commit fraud. While this issue is not new in financial services, it’s only starting to be uncovered more adequately.

Fintech versus fraudsters: Behind PayPal’s 4.5 million fraudulent accounts

PayPal recently disclosed that it has identified and removed 4.5 million illegitimate accounts on its platform. As fraud continues to dog the ecosystem, experts believe the core of the problem lies in digital identity-proofing.

What we're reading

Dollar General moves into BNPL (Finextra)

Upgrade is the fastest growing US credit card (Fintech Finance)

Whatever happened to peer-to-peer lending? (Kiplinger)

Santander launches loans backed by tokenized commodities (CoinDesk)

The coming boom in metaverse lending for banks (Forbes)

Square Loans originated $850M in SMB funding in Q4 (deBanked)

Buy now, pay later firms to refund fees as watchdog cracks down (Yahoo Finance)

Unfair lending with AI? Don’t point just at us, fintechs and online lenders say (American Banker)