Capital One Financial Corp. prohibits all of its credit cards from being used for point-of-sale credit transactions, except in the UK, where products buy now and pay later are assessed for regulatory potential.
In a statement, CapOne said it would “block transactions identified as point-of-sale loans charged on its credit cards, regardless of the point of sale lender.” Debit cards and checking accounts are not involved in this promotion.
Capital One considers these types of transactions to be riskysays a column from Reuters. “Capital One’s animosity is to be expected: BNPL providers are trying to eat their lunch,” says the column.
Buy now, pay later payments typically require the consumer to use a payment card that is charged 25% of the total price at the time of the transaction and three other installments of 25% each every two weeks. Most BNPL providers allow credit and debit cards. Installment payment provider Klarna AB says in between 80% to 85% of its transactions take place with debit cards. Australia-based Afterpay Ltd. says 90% of its transactions are with debit cards.
Still, observers suggest that CapOne’s move might be a wise one. “Capital One’s strategy … is a healthy credit move as it is stopping the refinancing of past debt,” said Brian Riley, director of credit advisory services at Mercator Advisory Group. “There are several problems with the BNPL model that comes into play. He points out that it can be an easy and sometimes too easy credit extension. There is a lack of clarity about disclosures, as fintechs such as BNPL providers are less regulated than banks. Third, there is limited testing of “ability to repay”. standards.
“The market is meeting a need,” says Riley, “but the concern is that credit is not bank-grade.”
As with most payments, the focus of this move is on risk, Ben Jackson, chief operating officer of the Washington, DC-based Innovative Payments Association, said in an email. “Just because a loan is being made in a new way doesn’t mean underwriting is no longer appropriate. You can’t normally use one credit card to pay for another credit card bill, so why should it be any different for other types of loans? Jackson says.
“The classic three C’s of credit still apply: collateral, capacity and character,” Jackson continues. “If you use a credit card to pay for a purchase now, pay for a loan later, you use one form of unsecured credit to pay off another form of unsecured credit, questioning your ability to repay. So you have run into problems when it comes to collateral and capacity. “
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