0% BNPL payment solutions have become increasingly popular in recent years, driven by providers such as Klarna, Affirm and Afterpay. Today, BNPL is primarily offered for the purchase of everyday consumer goods with an average purchase amount of less than CHF 200 and with short payback periods of up to 90 days. However, as customer demand for monthly payment solutions increases, certain BNPL providers have adopted the maximum financing limit of up to CHF 10,000 and over 48 months in Switzerland.
Suddenly, the unregulated 0% BNPL financing solution is competing with a regulated financing product that must adhere to the strict rules of the Swiss Federal Law on Consumer Financing, which are designed to protect consumers from the risk of over-indebtedness.
Yourasset explains the benefits and risks of both financing payment solutions and advises luxury retailers and consumers on how to adopt them.
Let’s be clear: Just because a loan to purchase a product is interest-free, i.e. the 0% BNPL financing described here, the loan amount still has to be repaid in full. With 0% financing, the bank or provider also charges interest, but this is paid by the merchant, so it appears interest-free to the customer, i.e. 0%.
The interest cost of the loan represents only a small portion of the total costs to be repaid. Therefore, the risk of over-indebtedness with 0% BNPL financing is almost as high as with a properly regulated, interest-bearing financing solution.
Yourasset advocates that consumer and luxury merchants pay careful attention to this, with consumer protection as a priority.
While Buy Now, Pay Later (BNPL) options offer a convenient way to finance smaller purchases, they may not always be the best or safest choice for higher-value luxury assets. For larger purchases, regulated financing solutions provide a safer, more transparent alternative that ensures financial responsibility for both consumers and merchants.
For luxury transactions up to CHF 7,000 0% BNPL can be a good solution tool to spread payments over 6 to 36 months to benefit from the convenience to align the purchase with their monthly income while the monthly rate shouldn’t present a significant impact on a consumer’s financial budget. However, as financing amounts increase, the limitations of unregulated 0% BNPL become apparent.
Even though 0% BNPL options are not subject to the Consumer Credit Act, the positive intention of this law should still be applied and not ignored.
1. BNPL is mostly suitable for Smaller Purchases. Affordability checks should still be applied
For watches or other luxury goods priced under CHF 7,000, BNPL allows customers to manage their expenses without high upfront costs. However, due to the risk of over-indebtedness, it is still advised that BNPL providers conduct affordability checks. A loan is a loan, whether it carries 0% interest or 5% interest—it must be paid back.
2. No Affordability Check Poses a Risk for Large Purchases
Most 0% BNPL providers do not perform an affordability assessment, which means customers may take on multiple payment obligations without ensuring they can meet them. While this may be manageable for smaller purchases, it becomes riskier when financing high-value assets even up to CHF 10,000 and longer repayment periods of up to 48 months.
3. High Merchant Fees and Risk of Payment Discrimination
Merchants offering 0% BNPL often face high transaction fees up to 10-20%, depending on the financing term offered (48 months being the most expensive option). This cost impacts the profit margins. For smaller luxury goods, these costs may be justifiable, but for high-ticket items, they can create pricing inconsistencies and present a disguised discount to customers opting for 0% BNPL that is not offered to customers using a direct payment method.
4. Lack of Consumer Awareness and Creditworthiness Checks
Research from the European Commission has highlighted that BNPL users are often less likely to fully understand the terms and conditions or the potential risks associated with these products. BNPL is frequently marketed as a ‘cost-free’ alternative to traditional consumer credit, which is misleading. Late payment fees can make up 8% to 35% of BNPL companies’ revenues, demonstrating how structural these fees are to the model. Additionally, rapid online approval processes often result in low-quality creditworthiness assessments, increasing the likelihood of financial distress.
For purchases above CHF 7,000 and longer financing terms up to 60 months, regulated financing solutions are the preferred solution as they allow consumer to align the purchase with their regular income while taking their financial situation into account too.
1. Compliance with the Law on consumer financing
Regulated financing adheres to strict consumer credit laws, ensuring responsible lending. Unlike 0% BNPL, it requires a creditworthiness assessment that examines income, expenses, and debt obligations to ensure a customer can afford to loan to purchase the product.
2. Lower Merchant Fees and Predictable Costs
Instead of BNPL’s variable, high-percentage transaction fees, regulated financing offers flat transaction fees (similar to a Credit Card based fee), allowing merchants to maintain cost control and avoid pricing discrimination.
3. Customer Transparency and Financial Protection
With Yourasset’s financing solution, customers gain full visibility into their financial situation and proposed financial commitment. Unlike BNPL that prioritize speed over thorough credit assessment, regulated financing ensures those are responsibly tailored to each individual’s financial situation.
4. Higher Financing Limits and Extended Terms
Yourasset’s regulated financing solution supports purchases up to CHF 250,000 with repayment terms up to 60 months, ensuring that customers have structured and manageable payment plans. This approach not only protects consumers from financial distress but also ensures luxury merchant adhere to their corporate social responsibility obligations.
Monthly financing payment solutions play an increasingly important role in the luxury goods industry. They give customers the option to purchase a sustainable luxury product with monthly payments that are aligned with their regular monthly income. In addition, the buyer is protected against future price increases (inflation), since the purchase price is fixed today. 0% BNPL is suitable for amounts up to CHF 7,000 and rather preferably shorter financing terms. For higher amounts and longer terms, the regulated financing option is the better solution for customers and merchants.
Yourasset offers both solutions to merchants and customers, and ensures a smooth processing so that the merchant and customer can focus entirely on the experience of buying a luxury watch.
Sources: European Commission