By Ray Birch
SCOTTSDALE, Ariz.—A new study that reveals nearly 50% of credit unions have no plans to introduce buy now, pay later (BNPL) financing is a concern, according to one analyst, who contends CUs not only risk falling further behind banks in perceptions of service, but also slowing member growth.
Tony DeSanctis, senior director at Cornerstone Advisors, said that at a minimum credit union should have BNPL on their roadmap, in addition to other features and benefits consumers want. And if they don’t find those benefits, such as free credit scores and easy access, they won’ thesitate to look to other providers.
BNPL, he stated, is becoming a consumer expectation.
“It is now part of that member experience,” he said. “I think it's going to be important to invest in things like buy now, pay later as a capability. Otherwise, you're going to lose customers and members. Your members are going to become bank and fintech customers.”
The obvious result, or course, is stagnant or even declining membership, DeSanctis reminded.
‘Phenomenal’ Approval
“The study also says 59% of Gen Z use buy now, pay later, and the satisfaction rates on it are phenomenal,” he said. “The customer satisfaction rates on BNPL are high—something like 80% of people saying they would use it again.”
Those data points are from a report from PYMNTS Intelligence—Growing Credit Union Membership via Lending and Omnichannel Banking Innovation—a collaboration with Velera.
“Currently, 99% of CUs surveyed offer traditional auto loans and personal loans, while only 1.5% currently offer BNPL,” PYMNTS reported. “And while 31% of CUs told us they plan to introduce BNPL in the next three years and 18% have similar plans for six years, nearly half of CUs have no plans whatsoever to offer BNPL plans to their members.”
Perceptions Around Satisfaction
As CUToday.info has extensively reported, credit unions were losing ground to banks in consumer service perception for several years in the American Consumer Satisfaction Index study (ACSI), before making a comeback in the latest ACSI report.
As credit unions have seen an ongoing decline in how consumers compare them to banks when it comes to service, representatives from ACSI have told CUToday.info a primary reason is banks are perceived as being more digitally savvy, whi h is critical as the definition of service has become a fast transaction versus a concerned, helping hand.
“Now the (Velera) study says only 50% of credit unions plan to offer BNPL,” DeSanctis noted. “It's about speed and convenience today. It's not about holding your hand. I think that's the real issue. And, let’s be honest, we're talking about Gen Z here and younger Millennials as the target demographic for these products, by and large, and older Millennials to a lesser extent.”
Tony DeSanctis
In the Plan, Stan
A credit union doesn’t have to have the offering in the short-term pipeline, but it needs to be a part of the plan, he said.
“I don't think you have to do it tomorrow, but it should be on your roadmap,” he said. “Because I think the expectations are going to be that the younger consumer wants the flexibility—to be able to say I’m going to pay this in full or I'm going to pay this on BNPL. They want to literally select an option by transaction. And not having that capability is going to force people to move to other products.”
Should most credit unions ultimately opt against a BNPL offering, it will come with a cost, DeSanctis suggested.
“I think the biggest issue in not offering BNPL is that will push credit unions further back (in the area of service satisfaction),” DeSanctis said. “A lot of where the banks have been winning is in the digital space. Let's be honest, it hasn't necessarily been community banks that have been winning. It's the big banks. They've got the technology. They've got the efficient and effective tools.”
The’Big Winners
Ultimately, predicted DeSanctis, the biggest winners in the BNPL space, shouid credit unions not get moving, will be fintechs.
“The challenge, if you want to boil it down, is credit union priorities,” he said. “The reality is credit cards are a very small piece of their overall business, and it tends to get neglected and under-invested in. Cards are very profitable, but they are not large on a relative basis, compared to their overall lending portfolio. I would even say personal loan products, collectively, are not a priority.”
The Real Opportunity—And the Real Risk
DeSanctis said he is aware credit unions that offer BNPL do it through their existing credit cards, but he emphasized the real opportunity with BNPL is with debit.
“I think the debit card has more traction with consumers,” he said. “The biggest opportunity, as I see it, is with the Affirm and Klarna model, which is giving customers the option to set BNPL on their debit card. That could become a differentiator—younger consumers default to that product instead of a traditional credit union debit card. And when that happens that means now my deposit no longer goes to the credit union. Now my primary relationships is no longer with the credit union. I think that's the biggest risk now.”
Defensive Offering
DeSanctis added he does not believe BNPL is a lead product, but more so one to protect and keep relationships.
“I don't think you can lead with a buy now, pay later product,” he concluded. “What you can do is enhance your relationship by adding it as a feature, especially to the debit product, and let your existing customers know they don't have to pull out an affirm or Klarna card.”