Capital One has paused high-risk buy-now-pay-later credit card transactions.
CapOne, the first major financial institution to oppose rapid expansion of BNPL segments, has leveraged innovative payment solutions to challenge the
SYDNEY — Capital One Financial Corp. (CapOne) has decided to halt its credit card transactions tied to point-of-sale loans, deeming them unacceptable in light of the risks involved for both customers and financial institutions. This move marks CapOne as the first major U.S.-based credit card company to distance itself from the buy-now-pay-later (BNPL) finance sector.
Background on BNPL
The third-largest U.S. credit card firm, with an estimated 62 million active accounts in addition to millions more in Canada and the United Kingdom, has made this decision following concerns over the financial risks associated with BNPL transactions. By banning these credit card BNPL payments, CapOne is aligning itself with a growing number of financial institutions that are scrutinizing this emerging segment.
The Rise of BNPL
BNPL platforms like Afterpay have gained significant traction in recent years, largely due to the COVID-19 pandemic and government stimulus measures. These platforms have redirected online shopping patterns globally, particularly in Australia where share prices for BNPL companies surged in 2020 following lockdowns and economic support for individuals.
The Regulatory Landscape
The decision by CapOne is part of a broader trend across financial institutions worldwide that are reassessing the risks associated with BNPL transactions. In Australia, Afterpay alone has achieved record sales, with U.S.-underlying sales reaching A$1 billion (USD 742 million) in November 2020 — more than three times its performance from the same month a year prior.
Implications for BNPL Operators
The move by CapOne is likely to have a ripple effect on BNPL operators, particularly those reliant on credit card BNPL transactions. A spokesperson for Afterpay mentioned that the decision has impacted a small percentage of customers, many of whom have opted to use alternative payment methods available within their Afterpay wallet.
Market Impact
The regulatory crackdown on BNPL transactions underscores the growing scrutiny of this sector by financial institutions worldwide. As BNPL platforms continue to expand and gain popularity globally, understanding and managing the associated risks are becoming increasingly critical for participants in this evolving market landscape.
In summary, CapOne’s decision reflects a broader industry shift towards evaluating and mitigating the financial risks inherent in BNPL transactions, with implications that extend beyond individual companies to the entire sector.
