Buy Now, Pay Later (BNPL) services have been popping up all over online check-out screens recently. Several players in the BNPL market include Afterpay, Kilarna, Affirm, and Quadpay, to name a few. A collaboration between PSCU and Fiserv offers a BNPL offering called Installment Payments Solution in the credit union space.
Consider BNPL as a sort of point-of-sale loan. The BNPL option is selected as the payment option during check out, and there will be a quick approval process. Once approved, the customer links a debit or credit card to the account to automatically make the payments when they are due.
There is typically a first payment made (usually 25%) of the purchase, and then the BNPL plans require the amount to be paid in the remaining fixed installments.
A recent study by The Ascent found that 55.8% of consumers have used a BNPL service. This is an increase of almost 50% in one year. The growth was seen by consumers aged 18 -24 and 55 +. This rapid growth has some payment experts predicting that purchasing and replacing credit cards might be the future. While BNPL can be an excellent choice for managing a more significant purchase but can get unwieldy if there are many installments and can be challenging to manage. There are also rather steep penalties if payments are missed or installments need to be changed. Some BNPL services can charge interest on outstanding balances with rates as high as 40%, others will charge hefty late fees and missed, or late payments may appear on a credit report with the potential to impact a credit score.
The BNPL trend can be a significant opportunity for credit unions to play the long game with their members. A BNPL offering appeals to a younger demographic, and when it is combined with a credit union's efforts in financial literacy, the result can be a trusted financial partner. The member benefits because they can get the item they desire and get the bonus gift of understanding debt, installment payments, and overall healthy financial management principles. Ideally, as the member matures in their financial needs, the credit union's early established trusted financial partnership pays off as they become the preferred financial provider.
This is a long-game play with a short-game win.
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