Capital One Forbids Use of Cards in ‘Buy Now Pay Later’ Transactions

Capital One Forbids Use of Cards in ‘Buy Now Pay Later’ Transactions

December 10, 2020

Buy Now Pay Later (BNPL), an increasingly popular online payment type that enables merchants to offer installment payments or instant credit at the point-of-sale, ran into a possible hurdle recently. According to a Reuters report, credit-card issuer Capital One said it will not allow its account holders to use their credit cards for BNPL transactions.

A spokesperson for Capital One, which according to the report is the third-largest U.S. card issuer with 62 million accounts, told Reuters it had made the move because “these kinds of transactions can be risky for customers and the banks that serve them.”

BNPL is growing rapidly in many places, especially in the wake of Covid-19 as consumers look for alternative ways to finance the purchases they need. There has been some pushback from consumer advocates who worry, as they have for years about credit cards, that making it easier for consumers to get credit will push them deeper into debt (although many of these options are interest-free depending on how quickly the purchase is paid off).

That likely isn’t the only reason Capital One made its decision, according to Logan Allin, founder and managing partner of San Francisco-based fintech investment firm Fin VC, who cited the competitive environment as well.

"With Affirm, Afterpay, and PayPal driving the space and BNPL volumes outpacing the number of credit cards issued, the growth and tailwinds of e-commerce accelerated in Covid-19, and the expectation that BNPL will represent a multi-billion dollar annual TAM in the future, credit card providers need to find a way to collaborate and better manage these consumer trends while integrating the risk dynamics."

A recent report from IBISWorld predicts that over the next half decade, the BNPL market will grow nearly 10 percent per year, reaching $ 1.1 billion in 2025. In addition to the companies mentioned by Allin, providers like Klarna, Laybuy, Openpay, Quadpay, Sezzle and Splitit are also active in the space.

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