India must regulate ‘Buy Now Pay Later’ products just as it does for consumer finance loans, Mel Gerard Carvill, Non- Executive Director at Home Credit N.V, has said.

There is also a need to have a common regulation of all consumer finance providers so that everybody is regulated on an equal basis, Carvill told BusinessLine here in an interview.

Carvill, who is a Board member at this international non-bank financial institution headquartered in the Netherlands, highlighted that many of the fintechs remain unregulated and they need to be regulated for trust to remain in the financial system.

Short-term financing

BNPL, which has seen an explosive growth in India in recent years, is like a short-term financing that allows consumers to make purchases and pay for them in future, often interest free. It has become apopular payment option, especially in online shopping. It is also popularly referred to point-of-sale installment loans.

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Carvill, who is visiting India, highlighted that many parts of the world are now bringing BNPL to regulation as consumers have to be protected. 

“The thing about BNPL is that there is no interest charged to a customer. There is interest but paid by the retailer. It is not regulated because there is no interest to the consumer. Usually in most countries lending is regulated when there is an interest charge but not when there is no interest charge to the consumer. The problem is that there has been an explosive growth in BNPL and people who take it are young people. You have obligations of paying back. It needs to be regulated in the same way as loans are regulated,” he added.

To buttress his point on BNPL, Carvill cited the UK Financial Conduct Authority (FCA’s) Board Commissioned Woolard review of the unsecured credit market and highlighted that this review had made a case to urgently regulate all BNPL products. While the emergence of unregulated BNPL products has provided a meaningful alternative to payday loans and other forms of credit, BNPL also represents a significant potential consumer harm, the Woolard review had said. 

Global themes on consumer finance

Highlighting the major global themes on consumer finance, he said that technology and regulations are the major ones. 

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“Growth of technology is the mega theme and it has transformed the business. It has also transformed the supply side of the business and it has brought new operators in. Traditionally, consumer finance was done by banks and non-banks, but now we see explosion in growth of BNPL, pay day lenders and fintechs. All of this has created response from the authorities which is a global mega theme —regulations. Banks and consumer finance companies have long time been regulated both in terms of prudential soundness and their market conduct (how they deal with customers). However, many fintechs remain unregulated. Countries around the world are slowly looking to bring them to regulation,” he added.

A majority of the BNPL start-ups operating in the Indian market has experienced growth over the last year. BNPL platforms are also raising funds to expand in the growing market.

India very exciting market

Home Credit, which had entered India in 2012, sees the country as a “very exciting market” and has “ambitious aspirations” for it in the coming years, Carvill said.

“Everyone has on their list the rise of India. It’s a very exciting market and it will be very difficult as an MNC not to have a commitment to Indian market. Everyone is optimistic about future on India and you have to be here if you want to succeed as a MNC. We have ambitious aspirations despite challenging years due to Covid-19. We have consolidated and transformed to a tech focused player in India,: he said.

Home Credit India’s digital channel, which accounted for only 2 per cent of its overall business in 2018, has now grown to 35 per cent. In India, this consumer finance provider has 2 million monthly active users on its app.