Scenario: Regulation Z Prime

Regulation Z Prime • Optimistic/pessimistic Future/near-future scenario

Regulation Z Prime

In the early 2020s, fintech companies and large banks bought up providers of “buy now, pay later” or BNPL services—and the mechanism became an embedded finance component of online shopping checkout systems. Soon, BNPL became so commonplace that banks now use it as the primary means for extending credit, effectively getting rid of personal lines of credit and loans.

Banks and other financial providers see BNPL as a way to capture revenue with high interest rates that they can apply to unsuspecting consumers who want immediate gratification: Think: that new VR headset right now. With rampant growth and no regulation, BNPL is pervasive, much like the incessant pop-up ads of the early 2000s. Banks offer BNPL to people who can’t afford or understand debt because their creditworthiness models accept anyone who makes any purchase. Much like the mortgage crisis of 2008, lenders wrongly believe they can confiscate the goods purchased as collateral. Because of this zombie collateral, the loans are tranched and redistributed at higher ratings, recreating conditions for the great credit crunch of 2035.