By Ray Birch
ST. PETERSBURG, Fla.—The rapid growth of buy now, pay later (BNPL) has now reached the point where it is a “table stakes” offering for all financial institutions, contends one expert, who suggests those that do not “lean into” BNPL will lose loan volume.
Nelson Fisher, new product management director at PSCU/Co-op Solutions, described for CUToday.info just how the still relatively new financial option has grown, as well as how credit unions can not just compete but even have an advantage over banks and fintechs.
“We're seeing a lot of different things in the market. Juniper Research came up with some statistics around the number of consumers—we're looking at 360 million consumers that actually use BNPL,” Fisher said. “That's no small number. Think about it. In the general scheme of things, BNPL began in the synthetic startup space, with Klarna and Affirm. And frankly, we've seen data that suggest they're continuing to drive strong throughput, relative to what happened in the recent Q4 timeframe around the holiday season.”
Fisher emphasized BNPL will only continue to grow as a table stakes offering for consumers, noting that loans made via BNPL—typically four payments for the full purchase amount—grew by more than 1,000% from 2019 to 2021, according to CFPB data.
‘It’s Extraordinary’
“And the CFPB still has to make a lot of determinations relative to what the future state of BNPL looks like,” Fisher said. “But the fact that we’re looking at statistics of this nature and really understanding the growth, it’s extraordinary.”
Fisher said data show 80% of BNPL users are between the ages of 25 and 34, a prime target also highly desirable to credit unions.
“That's significant. And when we think about where credit unions play, this is an opportunity,” he suggested. “It is the payment method that's going to be utilized even more. BNPL is here to stay; I have stated that before. We have to figure out what makes the most sense from a participation-rate perspective. What sort of considerations do you have to make from a risk perspective?”
The CU Role to Date
Nelson Fisher
When it comes to buy now, pay later, where credit unions have found a space for now is in converting members’ card purchases to installment payments.
“From a credit union perspective, we really think about the opportunity lying with that post-purchase scenario,” Fisher said. “Credit unions have these credit card relationships. They own those relationships with these members. The point-of-sale arena is really difficult. That requires an entirely different set of technology to be able to support that.”
Fisher believes the advantage credit unions have is the strong relationships they have with members, which are built on trust, something the established BNPL players lack.
“The opportunity is around the relationships that credit unions have instilled with their membership,” he said. “Credit unions need to think about how we can take a more digital-centric or digital-first look at the relationships that we have with members. Credit cards are those relationships.”
The Key
Predicting the numbers will continue to show credit unions can be strong BNPL players, Fisher said he believes the key will like in effectively getting the word out.
“This means pairing BNPL efforts with good marketing campaigns—push and also pull campaigns—to make sure that credit unions stay top of mind. This is absolutely critical,” he said.
A strong BNPL push for credit unions is important, Fisher reminded, as loans are being lost to other lenders.
“They are losing a share of the that loan volume,” he said. “Ultimately, those point-of-sale buy now, pay later solutions—the Klarnas and Afterpays of the world—they're going to be in a place where they are competing for that share of wallet at merchants, at those points of sale. Those losses are happening—that’s a given, and they are generally coming in the credit card space.”
Best Response Strategy
But Fisher again emphasized the best strategy in response is for credit unions to leverage their card portfolios, carving out different ways in which to engage the member in the post-purchase scenario.
“We'll always have to deal with that in the sense there are always competitors out there,” he said. “But what we can do best is lean into the technology that we have. Lean into the innovations.”
Fisher said PSCU/Co-op Solutions, which continues to work through their merger, will also continue to drive innovation and ways to further BNPL within the credit union community.
“Provide those integrated technology solutions that work,” he said. “Because BNPL is going to continue to grow. When it comes to payments, when it comes to relationships, (credit unions need to be) offering a tool for members in this really competitive consumer lending environment.”
The FOM Challenge
As CUToday.info has reported, a difficult obstacle for credit unions has been field of membership issues that come into play at the point of sale. Can credit unions somehow overcome that?
“I won't ever deal in absolutes,” Fisher said. “Ultimately, there likely is a method that we can develop to where we can compete in the point-of-sale space. However, at least in the short run, if we lean into the relationships that we already have and that trust, we can become a predominant BNPL player.”