Barclays is tackling buy now/pay later fintechs such as Klarna that have grown rapidly in the UK by offering consumers short-term, interest-free installment loans. And Amazon is indirectly tied to the effort.
Barclays is would have is working on a partnership with Amazon to offer interest-bearing installment loans to the e-commerce giant’s UK customers. Barclays has provided interest-free installment loans for iPhones with Apple UK since 2019.
And Barclays has appointed Antony Stephen, a former head 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 home improvements and furniture. In 2020, the division funded £2bn of purchases through major retailers such as Wayfair.co.uk, Homebase and British Gas.
Stephen’s appointment signals Barclays’ focus on lower value installment products. Since November 2020, Barclays has offered pay-as-you-go installment loans for purchases over €100 on the German Amazon site Amazon.de.
Stephen, who managed a $50 billion portfolio of payment 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 point-of-sale installment financing for retailers. Barclays Cubed will allow merchants to digitally connect with consumers by offering 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 instalments,” Barclays chief executive Jes Staley said during a a presentation to investors in April.
The shift to BNPL in the UK from traditional lending and payment products is most evident among younger consumers accustomed to a mobile customer experience. Although Barclays already has a substantial number of merchant relationships through its acquisition business and its long-standing Barclays Partner Finance POS finance operation, its challenge is to match the ease of use offered by the applications of the BNPL companies.
A July 2021 survey by Bain & Co. found that 49% of UK online shoppers aged 25-34 said they used BNPL while 51% used credit cards (respondents could select multiple responses). Among respondents aged 18-24, 42% used BNPL and 31% used credit cards.
“BNPL is embraced by consumers who want flexibility in payments,” said Marwan Forzley, CEO of B2B payments processor Veem. “For merchants, BNPL is all about accessing new types of customers and higher conversion rates at checkout, which is why they fund BNPL loans.”
As Barclays shifts to lower-value installment loans, BNPL players are expanding to larger, interest-bearing loans, currently the domain of banks and consumer credit providers.
But regulation could weigh on the growth plans of all these companies.
Laws of the country
Under current UK consumer credit legislation, BNPL providers can offer short-term, interest-free installment loans, where funding is provided by merchants, without BNPL providers being regulated as as consumer credit providers. This means that they are not required to perform credit checks or report BNPL loans to credit bureaus. BNPL companies’ flexible credit checks and instant decisions have been an important factor in their growth.
The Financial Conduct Authority, the UK financial services regulator, plans to introduce BNPL regulations to address concerns about potential consumer indebtedness.
The Treasury, the UK government’s finance department, launched a stakeholder consultation in October 2021 on the scope of FCA’s buy it now/pay later regulations. The FCA will then carry out further consultation before introducing regulations by 2023. These should include requirements for consumers to have adequate protections and receive sufficient information about their payment choices when presented with BNPL offers.
Meanwhile, BNPL providers can apply for UK consumer credit licenses from the FCA.
“Zip is applying for a consumer credit license in the UK so it can offer installment loans for higher ticket purchases and potentially charge consumer fees, just like other UK BNPL providers,” said Anthony Drury, UK managing director of Zip, which is based in Australia.
Klarna UK already offers FCA-regulated interest-bearing long-term loans for more expensive purchases, as well as non-regulated interest-free short-term 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.
In the year to August 31, 2021, Klarna UK customers grew by 40% year-on-year to 15 million and its retailers by 90% to 16,000, said Alex Marsh , director of Klarna UK.
Banks versus fintechs
UK banks such as HSBC and NatWest launched installment loan options on their credit cards, and in September 2021 UK neobank Monzo launched installment loans for its debit cardholders. But, because these banks don’t have point-of-sale financing agreements with retailers, their card-based installment 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 sign up customers who click their BNPL button on the checkout page. “Once we’ve created a new client, we ask them to download the Zip app,” Drury said. “We can then offer them promotions from our marketing partners as well as offers, rewards and cash back.”
For merchants, BNPL is all about accessing new types of customers and higher conversion rates at checkout.
Marwan Forzley, CEO, Veem
Zip, which launched its UK business in March 2021, has a current UK monthly fulfillment rate of A$8 million, Drury said. ‘We act as a replacement for the credit card, mainly for customers in their early 30s making purchases worth £100-120,’ he said.
Clearpay, a subsidiary of Australian company Afterpay, entered the UK in 2019. “We currently have over 2 million customers and 6,000 merchants in the UK,” said Rich Bayer, country manager for the company at UK. “Ninety-five percent of UK Clearpay customers use debit cards to make their installment payments.”
UK-based DivideBuy, which provides interest-free installment loans for higher ticket purchases, secured a £300m loan facility from Davidson Kempner Capital Management in September 2021.
“DivideBuy has 500,000 account holders who use fixed-term, interest-free credit with fixed monthly payments as an alternative to credit cards,” said Jo Balsamo, Chief Marketing Officer of DivideBuy. “Over 500 retailers offer DivideBuy as a payment option at their online checkouts.”
So far in 2021, DivideBuy has added 57 additional retailers, reached £150 million in gross merchandise value and is on track to reach £175 million by the end of 2021, Balsamo said.