While the concept of BNPL (Buy now pay later loans) is as old as the hills the app based finance providers are not. The commentary in the cnbc piece is interesting as it exposes the fact that regulation takes some time to catch up with product development and consumer protection legislation differs widely from country to country. In fact this issue is not new at all. Regulation has always lagged behind market innovation but whereas in the past the vast majority of new products were emerging in wholesale markets and the bankers themselves were deemed to know what they were doing this does not necessarily apply to consumer finance. As usual the situation consumer protection is largely opaque. It is up to the borrower to know what their rights and protections are. Taking out a BNPL loan can effect such things as an individual’s credit score in ways which are not necessarily understood as well as complicating the relationship between buyer and seller. Caveat emptor indeed.
Chinese behemoth Evergrande is inevitably in the financial news more or less every day with deadlines and payments being missed with depressing regularity. What is truly astonishing about this is the sheer size and scope of its operations together with the geo political distribution of its liabilities. It’s quite clear that a potential default of this size, north of $ 300 billion, will have a significant impact on the world at large. We will presumably find out when and if it happens but the pessimistic comment coming from the financial press is disturbing. The old and widely quoted Chinese curse “may you live in interesting times” is likely to show us all exactly what that means. The uncertainty is already making investors and lenders start to look very carefully at the opacity of the Chinese market and the possibility of a sectoral collapse in the property and construction area which has been running hot for years. Interesting indeed.
It’s official then. SME’s have taken on more debt during the pandemic. We know this because the Bank of England has told us. I suspect the same thing is happening all over the European continent and with the same baleful outcomes. Seriously though what did the government of the UK or other European countries think about businesses that were essentially stopped from doing any kind of businesses. Obviously the big names hit the headlines, Airline companies, hospitality, non essential (in who’s opinion/?) retail. The Uk government’s approach was to hose them down with money so they could bounce back! I don’t suppose that much thought was given to the fact that the world would have profoundly changed when the time came to repay this debt or that the banking system would not have been negatively affected. Payback time is rapidly approaching in the traditional and non traditional sense and I don’t think that it’s going to be pretty. We all know that the government is guaranteeing most of the COVID support loans but the devil will be in the detail of the arrangements between the treasury and the distributing banks and the resources that they are capable of deploying for debt collection. I’m afraid there will be a lot of blood on the carpet.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.
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