Capital One blocks buy-now-pay-later credit card transactions

By Aisling Finn on Wednesday 9 December 2020

Alternative Lending

The move marks the first step from a major financial institution to halt some buy-now-pay-later transactions. 

Capital One blocks buy-now-pay-later credit card transactions
Image source: Andrea Piacquadio/Pexels

 

Capital One has become the first major bank to put a stop to buy-now-pay-later (BNPL) credit card transactions, according to Reuters.

According to a spokesperson for the US-based bank, moving forward it will stop “transactions identified as point of sale loans charged on its credit cards, regardless of the point of sale lender.”

The spokesperson went on to describe the transactions as “risky for customers and the banks that serve them.”

The BNPL sector has come under increased scrutiny as of late, as fintechs like Klarna cash in on the online shopping boom as a result of the Covid-19 pandemic. 

When asked about the move from Capital One, a spokesperson for Klarna told AltFi: “This has had an extremely marginal impact, the very vast majority of our consumers use debit as the main form of payment and a tiny number use credit.”

“We have contacted any consumers impacted and provided alternative solutions to them. We don't see any real material impact as the consumer preference is very much debit cards and that was part of the reason Klarna was founded to enable debit cards to be used online. 

The BNPL sector is often not as closely regulated as other areas of fintech as more often than not the services provided don’t involve interest and repayments are made in fewer transactions than a typical loan. 

A spokesperson for Clearpay (also known as Afterpay) said: “Capital One’s decision has impacted a small percentage of Clearpay’s customers and many have already chosen to add an alternative payment method to their account.”

“It should be noted that Capital One's decision does not impact debit cards, which the vast majority of our consumers use to make payments. We will continue to engage with Capital One regarding their decision.”

Both Klarna and Clearpay are some of the most prominent names in fintech, not just the buy-now-pay-later ecosystem.

Klarna is Europe’s biggest fintech, valued at $10.65bn, and Clearpay’s parent company Afterpay is gearing up to list on the Australian stock exchange. 

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