Retail reduced: July 2023

BNPL providers are encountering several obstacles due to their sensitivities to the economic climate and looming regulation.

Incoming regulation may be impacting business viability and the appeal of BNPL companies to investors.

A recent report by the U.S. Consumer Financial Protection Bureau states, “While many BNPL borrowers who we observed used the product without any noticeable indications of financial stress, BNPL borrowers were, on average, much more likely to be highly indebted, revolve on their credit cards, have delinquencies in traditional credit products and use high-interest financial services such as payday, pawn, and overdraft compared to non-BNPL borrowers.”

Difficulties are evidenced by the purchase by Upgrade, a provider of personal credit lines and other consumer financial products, of Uplift, the BNPL vendor, for a serious undervalue of $100 million in July. Uplift had previously raised nearly $700 million in equity and debt, securing $123 million at a reported $195 million valuation in its Series C round alone. A quick exit appears to have been driven by the current market conditions.

Overlaid on this in the UK is the draft consultation on BNPL legislation by the UK government.Under government proposals, BNPL agreements will be regulated if they:

• are for fixed-sum credit to individuals or “relevant recipients of credit”
• are interest-free, repayable in 12 or fewer instalments within 12 months or less
• are provided by third-party lenders (i.e., a person who is not the provider of goods or services that the credit agreement finances).

As it currently stands BNPL providers are exempt under Article 60F(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 which lists interest-free agreements repayable in under 12 months and in 12 or fewer instalments. This regulation is likely to hinder BNPL companies and affect company valuations.

As well as regulation, macro-economic sensitivities will always play a big part in the success of BNPL. After gaining in popularity during the COVID-19 pandemic, BNPL providers now operate in an environment made more challenging by higher interest rates, less plentiful venture capital and investors’ desire for profits. The cost-of-living crisis has likely been an impacting factor – consumers will be less likely to want to take on debts through BNPL during times of financial hardship.

We look forward to seeing how BNPL companies will cope with the legislation in the UK and globally and whether they will be able to maintain their value during a difficult economic period.

To celebrate 50 years of hip-hop, Jay-Z’s entertainment industry Roc Nation has collaborated with Puma and non-fungible token company Legitimate to launch a sneaker collection, shaking up the entertainment industry. Called “Evolution of the Mixtape,” the collection allows buyers to access exclusive music content by Roc Nation, bringing a new, refreshing concept to Web3. The three sneaker models are embedded with a LGT tag (Legitimate’s proprietary near-field communication chip technology) in the tongue of the shoe. When scanned using a smartphone, the chip unlocks a blockchain-powered digital portal that features exclusive content, including unreleased mixtape drops from Roc Nation artists. The sneakers were available via retailers from July 14.

Calvin Chan, founder and CEO of Legitimate said “the vision here was to pay homage to and innovate on the concept of a mixtape bringing talent and people together, but also exploring how mixtape and hip hop culture has evolved and grown over time, especially with the inclusion of tech,” said Chan.

“‘Phygital’ products allow brands to engage with their customers on a physical and digital level… This capability and visibility is very important for brands, and ultimately, extremely valuable for consumers as they derive more value from their purchases and brand loyalty.”

Phygitals that collect data about user behaviour and preferences may trigger privacy issues. The Puma x Roc Nation product, for example, will likely involve customers entering personal information when creating accounts to access this exclusive content. These companies may use the data to track metrics such as where the user has scanned their tag, as well as other patterns such as sales concentration or even consumer demographics.

Businesses must ensure they collect data in compliance with applicable laws and regulations such as the GDPR or CCPA. The GDPR lists 7 principles that must be adhered to, most notably, confidentiality, lawfulness and transparency. Consent must always be sought from users when collecting and sharing data and strict data privacy policies and practices should be followed e.g., not storing customer information in public clouds. Products will require a warning to users that their personal data is being stored on the relevant blockchain or server through the scanning of the physical item.

We look forward to seeing how data privacy policies will evolve in relation to these exciting new products.

The PWC Consumer Sentiment Survey, conducted this Summer, has shown improvement in consumer sentiment across all demographics, with the variance between age groups closing and less affluent socioeconomic groups catching up.

The report confirms that the key factor forcing people to change spending habits is inflation. Its impact is universal across all age groups, still affecting spending intentions for 4 in 5 consumers. With inflation expected to slow in relation to increases in pay and national living wage towards the end of 2023, the report suggests that normal spending patterns will start to normalize.

Following this, there has been a reduction in consumers looking to cut back on spending in the next 3 months compared to the previous survey of June 2022. This suggests that finances have stabilised, particularly in the over 65s, where 40% now don’t expect to cut back at all.

The report concludes that ‘sentiment has stabilised, and should inflation finally begin to fall away, we could expect to see increasingly positive intentions later in the year.’