Mission report warns against fractional payments

The Chassaing parliamentary report warns against practices linked to microcredit and fractional payments, and recommends tightening the regulatory framework to limit their ease of access. The aim is to guarantee a higher level of consumer protection without waiting for the revision of the European directive on consumer credit.

Fractional payments: a booming practice

The principle of fractional payment is "buy now, pay later". In concrete terms, when making a purchase, the consumer has the option of paying in 3 or 4 monthly instalments, for a negligible fee.

The growth of e-commerce, reinforced by containment measures, has prompted merchants to turn to more fluid online payment solutions, including fractional payments, to enable their customers to follow their purchasing path without encountering any obstacles. The success of split payments is also due to the lack of regulation. In fact, this payment facility is not subject to the rules applicable to consumer credit when repayment does not exceed 3 months and charges are marginal.

A number of players in the sector, particularly specialized fintechs, have set one record after another. For example, Klarna, a Swedish company created to facilitate online shopping, saw its valuation triple in less than a year, to 31 billion euros. Similarly, French startups Pledg and Alma completed two rounds of financing at the beginning of the year, raising 15 and 49 million euros respectively. Fintechs specializing in traditional banks are also performing well: at the end of 2020, Oney Bank recorded a 40% increase in its production of 3- and 4-times payments, to 1.4 billion euros.

Towards a better framework for fractional payments

Authorities fear that the explosion in the use of fractional payments could lead to a rise in over-indebtedness rates. While transaction costs are marginal, consumers who fail to meet their payment deadlines are subject to late payment penalties. As a reminder, mini-loans and fractional payments fall outside the rules governing consumer credit, so suppliers are not obliged to carry out an analysis of the customer's creditworthiness.

Concerns about the rise of fractional payments were raised in a report on the prevention of overindebtedness and the development of microcredit commissioned by the French government 6 months ago. In this report, Philippe Chassaing, Member of Parliament, considers that " legislation is needed without waiting for the European directive to be passed ", even though at this stage there is no evidence that these new consumer methods will lead to an increase in the number of cases of overindebtedness. But despite these warnings, Bruno Le Maire does not wish to pre-empt the revision of the European directive. During France's upcoming presidency of the European Union, he will present an "ambitious" reform of the consumer credit directive.