Capital One Financial is no longer allowing customers to use its credit cards to pay off buy-now-pay-later (BNPL) debt, making it the first major card company to turn its back on the lucrative segment.
In an emailed statement to Reuters, the company said it would bar transactions identified as point-of-sale loans, regardless of the point-of-sale lender. “These kinds of transactions can be risky for customers and the banks that serve them,” a spokesperson for the company said.
BNPL companies, which charge merchants a commission rather than charging buyers interest, are less regulated than consumer credit laws in most countries. The segment has seen a surge in use as COVID-19 prompts more online shopping. The Australian BNPL company Afterpay reported $742 million in sales in November an increase of 300% year-over-year.
In August, PayPayl announced it was launching its own point-of-sale lending product, Pay in 4, that would allow customers to make purchases up to $600 and then pay in four installments over six weeks. At the same time, Ally Financial announced it was partnering with MasterCard’s alternative lending platform Vyze to offer installment loans on retail purchases between $500 and $40,000.
Data from PayPal and Afterpay suggest shoppers are willing to make larger purchases, up to 20% larger, if an installment plan is available. A 2018 survey from Citizens Financial Group found some 76% of consumers said they were more likely to make a retail purchase if a merchant were to offer a payment plan backed by a “simple and seamless point-of-sale experience.”
In a statement to Reuters, Afterpay said the decision by Capital One would only affect a ““small percentage of Afterpay customers and many of those have chosen to add a different card in their Afterpay wallet.”
A spokesperson for Capital One said customers that have made BNPL purchases paid for with debit cards or checking accounts would not be affected.
Smith Collection/Gado/Getty Images