Revolut launches BNPL service in Europe, but UK will have to wait
News comes hard and fast for the buy-it-now-pay-after (BNPL) industry. Early listed players like Affirm and shares of Afterpay have been hit hard by global market volatility caused by Russia’s triple whammy of war in Ukraine, rising inflation and governments having to pay for their response to Covid-19.
Then the BNPL giant Klarna reduced its workforce by 10%. The Swedish quadradecacorn is now said to be facing the realities of a downturn that could reduce its valuation from $45.6 billion to around $15 billion. Pressure on the industry increased in June when Apple announced plans to roll out its own installment services across the United States.
However, that hasn’t deterred British neobank Revolut from announcing the rollout of its own BNPL service. The £33bn challenger bank plans to provide its services in Europe. However, UK customers will have to wait to share their payments with the fintech company.
“We are currently testing Revolut Pay Later in Ireland, and we have no plans to introduce it to the UK at this stage,” a Revolut spokesperson said. Verdict. “We’ll keep you posted when we have any news on Revolut’s plans to offer Pay Later in the UK.”
Revolut plans to roll out the service in Poland and Romania by the end of 2022.
Revolut’s announcement follows in the footsteps of rivals Monzo and Lunar which have already rolled out BNPL services. Fintech incumbents like PayPal and Mastercard have also introduced their own payout services over the years.
The industry has grown massively during the pandemic. The BNPL industry is expected to continue growing to reach $166 billion by 2023, according to topical research from GlobalData.
While there are definitely stumbling blocks in the road ahead of BNPL players, Revolut joining the fray is a sign that the race is far from over.
What does the Revolut BNPL service look like?
So what’s new with the Revolut BNPL offer? At a glance, the new product allows the customer to pay for a product or service in three monthly installments. The first will be at the time of purchase.
However, there are essential differences between the neobank’s service and that of other players.
For starters, the solution doesn’t require merchants to sign up for it, which is the case with Klarna, which earns commissions on purchases made through its platform. The Revolut BNPL service will be available wherever Revolut payments are already accepted.
Instead of being paid by merchants, the challenger makes money from the new service by adding a 1.65% fee on the purchase. The costs will be split between the last two installments.
Revolut also wants to be seen as a responsible BNPL operator. This is hardly surprising, as regulators and consumer groups have warned that BNPL’s services could endanger the financial health of users.
“Revolut Pay Later gives our customers more control and flexibility over their personal finances, in a responsible way, by allowing them to spread the cost of purchases over three installments,” said Joe Heneghan, CEO of Revolut Europe.
The challenger bank argues that it reduces this risk by performing a soft credit check before the user can access the service. The neobank uses open bank data from customers’ linked bank accounts to determine if a customer is able to pay later.
“Customers who cannot afford payments for the minimum size of a subsequent payment limit of €200 will not be approved for installation, and customers who are approved are offered limits between €200 and €499. € based on their respective levels of affordability,” the Revolut spokesperson said.
Is this sufficient protection?
Some market watchers have already endorsed the credit check and spending limit.
“Putting a reasonable limit on the BNPL program is definitely a good way to protect users from overspending,” Brean Horne, personal finance expert at NerdWallet, told Verdict. “Having a maximum of $499 will help prevent people from going into huge debt, encouraging them to use the program wisely.”
Horne, however, cautions that while these measures can help, it’s up to the consumer to make sure to do their due diligence.
“Like many forms of debt, it’s important to fully understand the associated risks before committing to any type of contract or financial agreement,” Horne said.
“Lower credit scores can make it harder to successfully apply for new credit, as well as impact your ability to apply for mortgages, bank loans, auto insurance, utility bills, and more.
“If you use your credit card to make the repayments and you don’t pay your credit card back, you’ll also end up paying interest. Late or missed payments can also default to your credit report, which can again make it difficult to get approved for other loans in the future.
Revolut said its Pay Later service will not affect credit scores.
GlobalData is the parent company of Verdict and its sister publications.