By Megan Cummins | Strategic Consultant |
Engage fi
“Oh no, not another article on Buy Now Pay Later (BNPL),” might be your thought right now. Or, if you are like me, “YES! More data on BNPL!” Because the truth is, BNPL is so new that beyond a few research studies, we are just now starting to analyze the actual data from BNPL and its impact on consumers. The Consumer Financial Protection Bureau (CFPB) has a hunch, and it will soon have a lot to say about regulations, but in the meantime, here is what we do know:
- Even with regulations underway, BNPL is not going away.
Over half of the population has tried BNPL, and consumer brand awareness of providers is very high across all demographics. Seventy-five percent of BNPL transactions come from the youngest demographic and most who have tried it plan on using it again, even if they have missed a payment.
Source: “Buy Now Pay Later, An Analysis of Key Trends and Consumer Attitudes Part 2”. SG April 2022
- Financial institutions are losing money to BNPL pure-plays and, although big banks are offering solutions, credit unions and smaller banks still have a lot of catching up to do in terms of solutions. Very few financial institutions have implemented a BNPL solution and so far, have left this to the fintechs.
- There are many forms of BNPL, and the post-purchase installment loan is gaining speed in popularity. There is more than one flavor to BNPL, and consumers see BNPL offerings before purchase, at the point of sale, and post purchase. BNPL pure-play’s Affirm, Afterpay, and Klarna paved the way by offering services at the cart, which consumers started using because of the convenience and frictionless process. Most popular for younger demographics is the “Pay in 4” model with smaller dollar amounts. Older demographics tend to choose the longer-term installment loan financing, with a fee or interest rate attached, typically offered to credit card holders at larger Banks such as My Chase Plan and Citi Flex Loan.
- Consumers want to use BNPL from their trusted financial services provider. More than 80 percent of consumers said they would rather use these services from their trusted financial institution, according to a study done by COM. The problem is that their financial institution doesn’t offer these services—yet.
What’s at stake for financial institutions?
- Market share, specifically Gen Z and Millennials. Convenience is a priority for these consumers and meeting them where they are is a must. The number one reason BNPL is chosen is convenience, mostly through the digital channel. For the first time, we know what is important to consumers regarding a BNPL product.
Source: TSG ‘Buy Now, Pay Later: An Analysis of Key Trends and Consumer Attitudes: Part 2’ April 2022
- Loan balances. McKinsey’s annual POS Financing Survey shows that U.S. consumers are getting used to seeking merchant-subsidized credit at the point of sale: about 60 percent of consumers say they are likely to use POS financing over the next 6 to 12 months. Additionally, small businesses find value in these solutions as an offering to their customers, as most enhance cart conversion, increase average order value, and attract new, younger customers to the merchants’ platforms.
- Interchange income, specifically from those who use their debit card for most purchases. Younger consumers tend to use their debit cards more than credit cards. This is partly because they don’t qualify for a credit card and partly because of the negative connotations associated with credit card debt. When consumers choose BNPL options instead of using their cards, financial institutions could suffer great losses in interchange income.
If you haven’t started discussing BNPL within your institution, you must do so now. Most financial institutions will not be able to develop their own solutions internally because of limitations with staff and the current technical infrastructure. In our latest webinar at Engage fi, we featured three vendors who have solutions to help you bring a BNPL product to life.
Vendors Enabling BNPL
- PSCU’s first phase of its BNPL offering will allow credit cardholders to make post-purchase installment payments over a fixed period and for a fixed amount. Credit unions will have the ability to customize the criteria for their installment offers. Later phases will include pre-purchase and at-the-cart versions, as well as an opportunity to capture debit card activity.
- Quilo is a new all-digital lending officer for financial institutions. The Quilo platform, optimized to attract new Millennials and Gen Z, enables community financial institutions to originate, underwrite, approve, instantly fund, and service installment loans up to $60k. One stand-out feature is that users will also see their other credit card accounts within the app and can consolidate those balances into a new loan to pay down debt. Users can also make new purchases by obtaining a Quilo prepaid card. The intent is to offer each user a digital loan officer 24/7. Quilo digitally enables small business customers to increase their sales by 31 percent by offering instant financing to their customers by using QR code technology.
- equipifi’s white label BNPL solution integrates with banks and credit unions to curate offers consumers can view, accept, and manage on their existing banking apps. By offering a BNPL solution that is connected to the banking core and leveraging equipifi’s proprietary decision engine, debit cardholders can pay for purchases in a way that aligns with their financial health and goals. Cardholders can also manage everything BNPL on a single platform from their trusted financial institution.
These three companies offer different solutions to financial institutions competing in the BNPL space. While PSCU’s solution works with existing credit cardholders to increase balances on their lines of credit, equipifi works with existing debit cardholders to increase interchange and net new interest income through new loans within the debit card portfolio. Quilo, on the other hand, enables financial institutions to increase and establish new personal loan balances and will be relevant to those who want to increase their offerings around small businesses.
Many other solutions are available to your financial institution, but before you decide what next steps your financial institution will take, it’s important to identify the gaps you want to fill. For example, do you want to increase your small business offerings? Are you focused on loan growth? Are you focused on attracting a younger customer base? Answering these questions will help to ensure you make the right decision for your financial institution.
Final Thoughts
One step we all need to take is to offer financial wellness and education on the BNPL topic. Don’t forget why BNPL gained popularity in the first place: it was easy for the consumer. It’s time financial institutions take the next step in offering easy, responsible BNPL solutions to their own consumers. There’s too much to lose.
Megan Cummins is passionate about helping her clients achieve sustainable growth. She has spent the last 10 years of her career advising financial institutions on all facets of strategic thinking and planning. She analyzes and interprets data and financials to provide insights and actionable recommendations to help financial performance. “You can never have enough data” is one of her mantras. As a Strategic Consultant for Engage fi, Megan will help credit unions and banks increase efficiency and reach their strategic goals.
Engage fi has saved its clients over $2.5 billion in savings and incentives. To learn more about how Engage fi can help your financial institution, visit www.engagefi.com