Santander to offer buy now/pay later loans in more countries

Santander's buy now/pay later loan production is growing quickly in Germany, leading the bank to plot an expansion into additional markets, even as regulators turn up the heat on technology firms that offer the product.

"If a big bank goes into one area and offers a product that is normally from a fintech and can get 2 million customers in a few months, that's good news for all banks," said Ezequiel Szafir, CEO of Openbank, Santander's digital banking division.

The Spanish bank introduced BNPL in Germany nine months ago, with the quick uptake sparking a decision to bring the loan product to 18 European markets this year, starting with the Netherlands. Regulators in the European Union and elsewhere are stepping up oversight of BNPL, which Szafir said provides an opportunity for the bank to go on the offensive against competitors that have been less strictly regulated.

In 2021, the European Commission proposed an update to rules governing nonbank lending through digital channels. That update will pressure BNPL fintechs by requiring a tightening of rules that govern marketing and credit assessment, according to an analysis from RFI Group and UBS. The U.K's Financial Conduct Authority is planning similar regulations following a series of reports that link nonbank BNPL to higher debt rates and consumer defaults. And in the U.S., the Consumer Financial Protection Bureau recently ordered BNPL firms Affirm, Klarna, Afterpay, PayPal and Zip to turn over information on credit risk measurement and the use of customer data.

Bloomberg

Writing for American Banker, Brian Fritzsche, assistant vice president and regulatory counsel for the Consumer Bankers Association, said nonbank BNPL lenders currently have an unfair advantage because fintechs are not subject to federal oversight and "may not take into account an applicant's credit history and ability to repay."

Regardless of whatever form BNPL regulations take, existing bank regulations cover credit risk and data usage in most markets. This should allow banks to ease merchant and consumer concerns about credit risk and data usage, Szafir argues.

"With banks, the consumers and merchants know how their data is being used," Szafir said. "The whole conversation around regulations and BNPL is a matter for the fintechs. We are already regulated."

In Europe, Santander has a potential market of more than 63,000 merchants and 19 million consumers who are part of the bank's consumer finance unit, which developed Santander's Zinia-branded BNPL product along with the Openbank digital division.

The bank upgraded its lending and bank technology over the past several years in an effort to speed product delivery by using agile project management in IT and product development. Agile refers to breaking up a large project into shorter sub-projects that are reviewed and updated frequently. Synchrony Financial, for example, used agile development to deploy its Venmo payment card.

At Santander, agile development allows it to deliver BNPL loans faster, in line with the experience of nonbank technology companies, Szafir said. "We can play by the rules of a bank but in the eyes of the consumer we will be like a fintech," he said.

Santander is presently focused on expanding BNPL in Europe before considering an expansion to North America. In the U.S., Synchrony, Capital One Financial, U.S. Bancorp and JPMorgan Chase have all signaled plans to offer BNPL products. That sparked a countermove from BNPL fintechs, which have entered partnerships and made investments to add scale against traditional banks.