Funding Circle rolled out its first buy-now-pay-later (BNPL) product recently and Zopa is set to launch its own offering soon, suggesting that this could be a new growth area for peer-to-peer lenders.
At a glance, the BNPL space is a perfect fit for P2P. Originally used by online retailers, the service allows shoppers to order clothes or other goods and settle their bill in instalments. The first instalment is generally made 30 days after the purchase was completed.
Fintech lenders such as Funding Circle are now demonstrating the potential for BNPL options beyond the consumer market. The P2P platform’s FlexiPay facility acts as a BNPL option for business expenses, between the value of £2,000 and £30,000. Funding Circle uses its existing borrower base and credit checking system to ensure that only high-quality borrowers are approved – a model that consumer lender Zopa is also expected to follow.
And last month, Fintex Capital, the fintech investment firm dedicated to alternative credit, launched its own suite of BNPL products, showing the appeal of BNPL for the alternative lending market.
According to a review by the Financial Conduct Authority, the use of BNPL products nearly quadrupled in 2020 and is now at £2.7bn, with five million people using these products since the beginning of the coronavirus pandemic.
The scale of this market has already tempted neobanks such as Monzo and Revolut, as well as payment providers such as PayPal.
However, P2P lenders could be discouraged by the prospect of upcoming regulation. The City watchdog has a remit to protect consumers and its research into BNPL schemes has found significant potential for consumer harm, suggesting that BNPL regulation is almost certainly coming.