India needs to regulate “buy now, pay later” products the same way it does consumer credit, said Mel Gerard Carvill, non-executive director at Home Credit NV.
It is also necessary to have common regulation for all consumer finance providers so that all are regulated equally, Carvill said business line here in the interview.
Carvill, board member of this international non-bank financial institution headquartered in the Netherlands, stressed that many of the fintechs remain unregulated and need to be regulated to maintain confidence in the financial system.
Short term financing
BNPL, which has seen explosive growth in India in recent years, is like short-term finance that allows consumers to make purchases and often pay for them interest-free in the future. It has become a popular payment option, especially when shopping online. It is also popularly referred to as a point-of-sale installment loan.
Carvill, who is visiting India, stressed that many parts of the world are now bringing BNPL into regulation because of the need to protect consumers.
“The special thing about BNPL is that the customer is not charged any interest. There is interest, but it is paid by the dealer. It is not regulated because there is no interest for the consumer. Normally, in most countries, lending is regulated when there is an interest charge, but not when there is no interest charge for the consumer. The problem is that BNPL has exploded in growth and the people taking it are young people. You are obliged to pay back. It needs to be regulated just like credit,” he added.
To support his position on BNPL, Carvill cited the Woolard review of the unsecured credit market, commissioned by the UK Financial Conduct Authority (FCA) board, stressing that this review had advocated urgent regulation of all BNPL products. While the emergence of unregulated BNPL products presents a viable alternative to payday loans and other forms of credit, BNPL also poses significant potential consumer harm, the Woolard report found.
Global consumer finance issues
He highlighted the big global consumer finance issues, saying that technology and regulations are the most important.
“Technology growth is the mega topic and has changed the business. It has also transformed the supply side of the business, bringing in new operators. Traditionally, consumer finance has been done by banks and non-banks, but now we are seeing explosive growth from BNPL, payday lenders and fintechs. All of this has prompted a response from the authorities on what is a global mega-topic – regulations. Banks and consumer finance companies have long been regulated in terms of both regulatory soundness and their market behavior (how they treat customers). However, many fintechs remain unregulated. Countries around the world are slowly trying to get them to regulate,” he added.
A majority of the BNPL startups operating in the Indian market have grown in the last year. BNPL platforms are also raising funds to expand in the growing market.
India very exciting market
Home Credit, which entered India in 2012, sees the country as a “very exciting market” and has “ambitious ambitions” for the years to come, Carvill said.
“Everyone has the rise of India on their list. It is a very exciting market and it will be very difficult as a multinational not to have a commitment to the Indian market. Everyone is optimistic about India’s future and you need to be here if you want to thrive as an MNC. Despite challenging years due to Covid-19, we have ambitious goals. We have consolidated and evolved into a tech-centric player in India,” he said.
Home Credit India’s digital channel, which accounted for just 2 percent of total business in 2018, has now grown to 35 percent. In India, this consumer finance provider has 2 million monthly active users on its app.
03 May 2022