As Holiday Shopping Arrives, Affirm Launches BNPL Gift Cards & OCC Issues Guidance

BNPL | Dec 13, 2023

The Office of the Comptroller of the Currency (OCC) recently issued a Bulletin 2023-37, focusing on the risk management of 'Buy Now, Pay Later' (BNPL) retail lending.

This bulletin aims to guide banks in effectively managing risks associated with BNPL lending and ensuring responsible loan offerings. It underscores the importance of safe, sound, and fair practices in line with applicable laws and regulations.

• The bulletin specifically targets BNPL loans that are payable in four or fewer installments without finance charges, distinguishing them from traditional installment loans.
• BNPL loans have seen a surge in popularity, especially among younger generations and consumers with limited credit history. They offer a low-cost, short-term financing alternative, often used for online purchases.
• Risks include potential borrower overextension, underwriting challenges due to limited credit history, unclear disclosure language, and issues with merchandise returns and disputes.

See:  Amazon & Affirm’s BNPL Service Aids Small Business Growth

• The bulletin highlights the risks of automated BNPL lending processes, including fraud risk and challenges in managing third-party relationships.
• Banks are advised to adopt risk management systems tailored to BNPL loans, focusing on underwriting, clear marketing materials, and comprehensive credit bureau reporting.
• Why it's important? As BNPL loans become increasingly popular, banks must navigate the unique challenges they present, including credit, operational, and compliance risks. By adhering to these guidelines, banks can better serve the evolving needs of consumers while maintaining sound lending practices.

Affirm and Blackhawk Network Launch BNPL Flexible Payment Plan Gift Cards

Affirm has partnered with Blackhawk Network to innovate the gift card market by offering flexible payment options. Shoppers can now purchase gift cards ranging from $25 to $500, with the choice of zero-interest four-installment plans or monthly payments bearing interest rates between 0% and 36%, depending on creditworthiness and eligibility.

• Blackhawk Network generates revenue upon gift card activation and charges management, transaction, and technology fees to its enterprise clients. This partnership not only benefits Affirm but also bolsters Blackhawk's position in the digital gift card mall.
• The initiative, tested for a month, was strategically timed to coincide with the holiday season. Wayne Pommen, Affirm's Chief Revenue Officer, emphasized the importance of launching this service before the peak gift card purchasing period around Christmas. This move aligns with consumer spending habits, making Affirm a go-to option for last-minute holiday shoppers.

See:  Affirm Partners with FICO to Enhance Credit Scoring for BNPL Loans

• Affirm's CEO, Max Levchin, highlighted the company's shift from being predominantly an e-commerce entity to exploring physical retail spaces. This expansion into gift card offerings allows Affirm to tap into the potential of in-store shopping experiences.

This move by Affirm indicates a growing trend in the BNPL industry to diversify services and cater to a broader range of consumer needs.  Klarna, a Stockholm-based BNPL brand, also offers digital gift card purchases through its app.

Record BNPL Usage On Cybermonday

• BNPL plans hit an all-time high on Cyber Monday, with a 43% increase from the previous year, as reported by Adobe Analytics.
• While BNPL plans offer an alternative to credit cards by allowing interest-free installment payments, they come with significant risks. Failure to make timely payments can lead to substantial interest and fees.
• Similar to credit cards, delinquency in BNPL plan payments can severely damage credit scores, affecting future loan qualifications and housing opportunities.

See:  CFPB to Regulate BNPL Like Credit Card Firms

• Avoiding BNPL plans for non-essential purchases. In cases of emergency, such as needing a new home appliance, a credit card or a 0% APR card might be a safer option to prevent credit score damage.

How to Spot Signs of Overuse

• Cautioned against using BNPL for routine small purchases (best for significant, one-time expenses).
• If you are regularly late or skipping payments altogether, it may result in unsustainable BNPL usage.
• Resorting to loans or borrowing to pay off BNPL items is a red flag.  If this is the case, advised to halt new purchases and focus on clearing existing debts.
• Hiding BNPL purchases, especially from a spouse, is a sign of guilt and potential financial mismanagement.
• The stress of managing multiple BNPL payments with varying due dates can be overwhelming, signaling the need to reconsider purchasing habits or explore alternative financing methods.

Conclusion

Affirm's foray into offering BNPL options for gift card purchases marks a significant evolution in its business strategy, aiming to blend the convenience of online shopping with the tangible experience of in-store purchases.

See:  CFPB to Regulate BNPL Like Credit Card Firms (also:  CFPB Insights from BNPL Making Ends Meet Survey)

This move reflects a keen understanding of consumer preferences and spending patterns, especially during the holiday season, and positions Affirm as a versatile player in the rapidly evolving BNPL market.

---

The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

• SEO Powered Content & PR Distribution. Get Amplified Today.
• PlatoData.Network Vertical Generative Ai. Empower Yourself. Access Here.
• PlatoAiStream. Web3 Intelligence. Knowledge Amplified. Access Here.
• PlatoESG. Carbon, CleanTech, Energy, Environment, Solar, Waste Management. Access Here.
• PlatoHealth. Biotech and Clinical Trials Intelligence. Access Here.
• Source: https://ncfacanada.org/as-holiday-shopping-arrives-affirm-launches-bnpl-gift-cards-occ-issues-guidance/