- Posted by Luke Stubbs
- On 1 February 19
On 16 January 2019 SWIFT, the global provider of secure financial messaging, announced the launch of a new “Pay Later” API standard.
The standard is designed to allow instant loan approval between banks and customers at the point of sale – via the merchant and retailer network. The new standard will enable shoppers making a purchase online to pay for their goods and services in instalments (with a basic loan provided by a bank).
The aim is that Pay Later will be offered as an option to customers making online purchases during the check-out process. If they select it they will be shown loan offers (to cover the cost of the goods or services) and repayment schedules from participating banks. Once they select an offer, the loan will be initiated, and the funds immediately transferred to the merchant. The customer will receive the goods and/or services and will pay off the loan in instalments. The model, already provided by the likes of Afterpay in Australia, has proven a popular way to finance retail purchases.
Now that the first version of the API has been published, it will be tested in a series of pilots between merchants, marketplaces, fintechs and banks. Although it is early days, this announcement by SWIFT should be of interest to anyone involved in payments, retail, financial services and fintech for a number of reasons:
- In the new world of “Open Banking” where fintech businesses have the potential to access customer bank accounts and disrupt traditional business models, this opens up a potential new business line for banks. Rather than big tech companies, and online retailers, becoming the competitors of banks, they could become a new sales channel for loans.
- SWIFT is a well-established part of the financial ecosystem. Some have predicted that Open Banking, with its requirement for banks to provide open communication channels to third parties, could reduce the prominence that SWIFT has in the market. Should Pay Later gain traction however, it could put SWIFT at the center of a new industry standard for retail lending.
- Retailers and merchants who are interested in offering this as an option to customers should look closely at the regulatory status of the transactions. In the UK, businesses involved in offering loans may (although they are not actually providing the finance themselves) still need to be authorized by the FCA as credit brokers.
- Similarly, banks looking to participate and offer loans through this system will need to ensure that the correct information and documents are provided to borrowers at the right time and that the loan agreement is executed properly, to ensure that the loans comply with Consumer Credit law and are enforceable.
The above article was co-authored by Luke Stubbs and Louise Neave. Luke and Louise are Legal Directors in DLA Piper’s Manchester and Liverpool offices. Luke specializes in technology, payments and financial services contracts and transactions. Louise specializes in financial regulation and consumer credit.