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Winning the Battle Against Buy Now & Pay Later Programs

By August 25, 2023Mark's Minutes

The field of players in the “Buy Now Pay Later” service, or BNPL continue to grow. This year has seen the addition of Apple into the mix with their “Apple Pay Later” offering. Apple joins a growing field of payment providers that are offering the “installment loan” solution to purchases.

Installment loans are the age-old method of “paying later.” Most of the early installment loans were retailer driven. You wanted to buy something buy couldn’t afford it, the retailer would book the sale and take your down payment and then bill you for the difference. It might be a 12 or 24 month schedule with interest payments included.

New “No Interest” Payment Programs

These BNPL loans are now referred to as point-of-sale financing.

Buy it now, but pay it later. And, without any interest payments. This sure seems like a free lunch. However, if you miss a payment there often is a large late fee for some providers. In the case of Apple Pay Later, if you miss a payment your future purchases are prohibited.

Still, many are signing on to the service. It’s estimated that today, there are in excess of $100 Billion in annual loans and growing.

Younger Consumers are Using BNPL

According to statistics from Cornerstone Advisors, the usage of BNPL skews younger, with the largest segment being Millennials. Currently, 41% of Millennials are using the service:

Gen Z (21-25) 36%
Millennials (26-40) 41%
Gen X (41-55) 30%
Boomers (56-75) 18%

With so many younger consumers using the service, it’s critical to maintain a retention strategy to avoid losing these relationships.

What Can You Do to Compete?

Cody Banks from PSCU explained the challenge this way, “Institutions should package BNPL services in a way that promotes responsible use AND aligns with the institution’s vision.”

Today, you can partner with a provider to offer similar services to remain relevant in all categories of payment/lending services. But this isn’t a winning strategy on its own. You must also leverage the other advantages that your institution brings to the relationship.

Leverage BNPL to grow the Complete Relationship

Offering a BNPL is just one leg of the service stool. Like any tool that facilitates spending, it can be misused. For many it can lead to unintended consequences…like spending more than you earn.

Instead, resolve to be a proactive resource with financial wellness initiatives and products that feature low fees and low interest. Actively reach out to the younger segments to help them build good credit habits with a starter credit card, or offer a balance transfer from a higher rate card to yours.

Because these are smaller balances and transactions, this strategy won’t drive short-term profits. However, it will build a deeper relationship and a meaningful access to these consumers as they grow and evolve.