Financial protection ‘at risk’ as consumers shun card payments

Increasing numbers of consumers are shunning use of credit cards because of high rates of interest, but alternative payment options may not offer financial protection.

Speaking at an Abta Travel Finance Conference in London, David Sykes, chief commercial officer at Klarna which offers Buy now pay later (BNPL) options, said: “More and more consumers in the US and UK are making a conscious decision not to use credit cards.”

He told the conference: “We have a portion of consumers steering away from credit cards and a portion with no access to a credit card. About half UK adults have used our product, trying to avoid the 36% APR [annual percentage rate] on card transactions.”

Sykes suggested: “Buy now pay later used to be the most-expensive form of payment. Now we’re the cheapest because of our scale.”

He argued: “You would be insane not to offer flexible payment options.”

James Simcox, chief product officer and international managing director at payments technology firm Equals Money suggested ‘open banking’, or direct payments between accounts, offers “speed in getting your money”.

He said: “Our business is all about how you can pay faster. Most payments are made in 90 seconds. You can make multiple payments, and you can issue a repayment immediately.”

Simcox suggested the benefits to business also include “no chargebacks and no consumer protection”, saying: “As a business that is quite good. Consumers don’t need to know that. The challenge is to get consumers to do it. The best way is to make it the first [payment] option.”

Yet he noted: “We’ve not seen much open banking in the merchant space. Consumers are not really used to it.”

Sami Doyle, chief executive of TMU Management, urged caution, saying: “Payment institutions are not designed as credit institutions [and] travel creates an additional level of risk.”

As a result, he noted: “There are probably 12 active merchant acquirers in the UK and [only] five in this [travel] space.” Merchant acquirers process the card payments taken by retailers.

Doyle argued: “All these options are driven by consumer adoption. [But] more payments made account to account put pressure on financial protection and on the Atol scheme.”

He suggested: “When you get to a certain scale, you end up having the same credit-risk conversation.”

Doyle also warned that a disconnect between how consumers make payments and how suppliers are paid can cause problems, citing the example of the FTI Group in Germany which failed last year.

He said: “FTI consumers had flexible payment terms, but suppliers didn’t. The disconnect between the way FTI accepted payments from consumers and the terms with suppliers made suppliers nervous.”

Doyle added: “There is flexibility on both sides. Merchants can shop around, but it works both ways. The merchant acquirer can drop you.”