Buy Now Pay Later Risks Unfair Practices for Consumers, Merchants

NACS supports new payment innovations, but BNPL services need to be assessed to prevent antitrust.

March 29, 2022

Buy Now Pay Later Payments

ALEXANDRIA, Va.—NACS has submitted comments to the Consumer Financial Protection Bureau on its inquiry into Buy Now Pay Later (BNPL) providers.

“The antitrust problems with credit card swipe fees skew the market in a way that enhances the potential for actions from Buy Now Pay Later providers that can be unfair to consumers and merchants,” said Doug Kantor, NACS general counsel.

BNPL providers market their services to retailers based on the proposition that they bring in additional customers to those retailers, which would increase purchases, as those customers wouldn’t normally have the financial ability to make without a BNPL option. However, the cost to BNPL is high, says NACS.

“That cost is based on the artificially inflated fees charged by credit card providers—though BNPL is generally more expensive because of the value those incremental new customers may bring,” Kantor writes. “That exacerbates the problems created by Visa and Mastercard’s pricing and attendant unfair competition problems.”

The impact of the large fees BNPL (and credit card companies) charge to merchants negatively impacts retail businesses and the economy as a whole, says NASC, but also the impact on consumers should be recognized.

“Having an uncompetitive and inflated income stream from merchants changes the risk assessment that credit providers make when extending credit to consumers and gives them license to take unwarranted risks,” Kantor said. “This can lead vulnerable consumers to incur debt that they cannot handle.”

BNPL providers are increasingly encouraging consumers to incur those debts not only through infrequent, large purchases but also through everyday purchases of less expensive items, according to NACS.

“The result is analogous to the subprime mortgage acceleration of the early 2000s with the risk of default being defrayed by large fees imposed on merchants rather than through the creation of financial instruments that offload the risk of default,” writes NACS.

This is a particularly significant moment for BNPL because Mastercard now plans to launch its own BNPL service, which NACS says raises serious concern. Mastercard (and Visa) already has rules in place that require merchants that accept any cards issued with Mastercard's brand to accept all of them.

NACS says that Mastercard plans to leverage that position (which already violates antitrust laws) to automatically apply its BNPL service to any online merchant that accepts its payment cards and does not opt out of its BNPL service.

“This adds another layer of unfair practices on top of what exists in the market today,” said Kantor. “We do not want to see that history repeat itself with BNPL. These services should be forced to develop on a competitive market basis without an assist from anticompetitive practices brought to bear by dominant firms in the sector.”