Barclays is taking on buy now/pay later fintechs such as Klarna that have expanded rapidly in the U.K. by offering short-term, interest-free installment loans to consumers. And Amazon is indirectly tied to the effort.
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And Barclays has appointed Antony Stephen, former head of Amazon Payments Europe, as CEO of Barclays Partner Finance, which provides U.K. consumers with point-of-sale financing and installment loans for higher-value purchases such as home improvements and furniture. In 2020, the division financed £2 billion worth of purchases through large 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 provided interest-bearing installment loans at checkout for purchases over €100 on Amazon’s German site Amazon.de.
Stephen, who ran a $50 billion portfolio of payment products at Amazon Europe including installment loans, aims to grow Barclays’ U.K. point-of-sale finance business. He reports to Ruchir Rodrigues, head of Barclays Cubed and Consumer Bank Europe.
“We’re actively expanding our offering by partnering with some of the U.K.’s largest retailers,” Rodrigues said in an emailed statement to American Banker.
The bank also recently launched Barclays Cubed, a commerce initiative which includes point-of-sale installment financing for retailers. Barclays Cubed will enable merchants to connect digitally with consumers by offering discounts via the Barclays mobile banking app.
“The consumer can then make a purchase on the merchant’s website and, if they choose, we can instantly approve them to pay for their shopping using installments,” Jes Staley, Barclays' chief executive, said in an investor presentation in April.
The swing to BNPL in the U.K. from traditional lending and payment products is most evident among younger consumers who are used to a mobile-first customer experience. Although Barclays already has a substantial number of merchant relationships through its acquiring business and its long-standing Barclays Partner Finance point-of-sale finance operation, its challenge is to match the ease of use provided by BNPL companies’ apps.
A July 2021 survey by Bain & Co. found that 49% of U.K. online shoppers aged 25-34 reported using BNPL while 51% used credit cards (respondents could select more than one answer). Among respondents aged 18–24, 42% were using BNPL and 31% were using credit cards.
“BNPL is being adopted by consumers who want flexibility in payments,” said Marwan Forzley, CEO of the B2B payments processor Veem. “For merchants, BNPL is about gaining access to new types of customers and higher conversion rates at checkout, which is why they finance BNPL loans.”
As Barclays moves into lower-value installment loans, BNPL players are expanding into higher-ticket, interest-bearing loans, currently the domain of banks and consumer credit providers.
But regulation could weigh on all of these companies' growth plans.
Law of the land
Under current U.K. consumer credit legislation, BNPL providers can offer short-term, interest-free installment loans, where the financing is provided by merchants, without the BNPL providers being regulated as consumer credit providers. This means they aren’t required to conduct hard credit checks or report BNPL loans to credit bureaus. BNPL companies’ soft credit checks and instant decisions have been an important factor in their growth.
The Financial Conduct Authority, Britain’s financial services regulator, plans to introduce BNPL regulations to address concerns about potential consumer indebtedness.
The Treasury, the U.K. government’s finance department, launched a stakeholder consultation in October 2021 on the scope of the FCA’s buy now/pay later regulations. The FCA will then conduct a further consultation before introducing regulations by 2023. These are expected to 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 seek U.K. consumer credit licenses from the FCA.
“Zip is applying for a U.K. consumer credit license so that it can offer installment loans for higher-ticket purchases and potentially charge consumer fees, and so are other U.K. BNPL providers,” said Anthony Drury, U.K. managing director for Zip, which is based in Australia.
Klarna U.K. already offers FCA-regulated interest-bearing longer-term loans for higher-ticket purchases as well as unregulated short-term interest-free BNPL loans. It acquired the U.K point-of-sale finance provider Close Brothers Retail Finance in 2018, and its Klarna Bank subsidiary, which is licensed in Sweden, is regulated in the U.K. by the FCA.
In the year to August 31, 2021, Klarna U.K.’s customers grew by 40% year over year to 15 million and its retailers by 90% to 16,000, said Alex Marsh, head of Klarna U.K.
Banks vs. fintechs
U.K. banks such as HSBC and NatWest have launched installment loan options on their credit cards, and in September 2021 the U.K. neobank Monzo launched installment loans for its debit cardholders. But, as these banks lack point-of-sale financing agreements with retailers, their card-based installment loans can only be set up post-purchase through customers’ banking apps.
By contrast, BNPL providers directly integrate with e-commerce sites, enabling them to sign up customers who click their BNPL button on the checkout page. “Once we’ve originated a new customer, we get them to download the Zip app,” said Drury. “We can then provide them with promotions from our marketing partners as well as offers, rewards and cash-back.”
For merchants, BNPL is about gaining access to new types of customers and higher conversion rates at checkout.
Zip, which launched its U.K. business in March 2021, has a current monthly U.K. run rate of AU$8 million, said Drury. “We act as a credit card replacement, mostly for customers in their early 30s who are making purchases of £100 to £120 in value,” he said.
Clearpay, a subsidiary of the Australia-based Afterpay, entered the U.K. in 2019. “We currently have over 2 million customers and 6,000 merchants in the U.K.,” said Rich Bayer, the firm’s U.K. country manager. “Ninety-five percent of Clearpay’s U.K. customers use debit cards to make their installment payments.”
U.K.-based DivideBuy, which provides interest-free installment loans for higher-ticket purchases, secured a £300 million lending facility from Davidson Kempner Capital Management in September 2021.
“DivideBuy has 500,000 account holders who use interest-free credit over a set term with fixed monthly payments as an alternative to credit cards,” said Jo Balsamo, DivideBuy’s chief marketing officer. “Over 500 retailers offer DivideBuy as a payment option at their online checkouts.”
So far in 2021, DivideBuy has added 57 more retailers, achieved £150 million in gross merchandise value, and is on track to hit £175 million by the end of 2021, Balsamo said.
