By Ray Birch
ST. PETERSBURG, Fla.—Will buy now, pay later (BNPL) become credit unions’ new indirect lending channel?
One payments expert believes that is exactly what will happen in the near future, especially as solutions are developed for credit union BNPL offerings to be used by non-members at the point of sale, too.
Jeremiah Lotz, managing vice president of digital and data at PSCU, outlined for CUToday.info what he foresees for the rapidly growing BNPL financing, including how credit unions will overcome a variety of hurdles.
Lotz agreed BNPL has quickly become a new, modern layaway plan—in reverse—with consumers getting their item before they pay the full sales price. But to put the offering in perspective, he looked back to something else that has markedly affected credit unions’ business models and loan volumes: Auto financing.
A Lesson from the Past
He noted how credit unions first faced competition for auto loans made at dealerships many years ago and then found a way to overcome the hurdle of membership to add indirect lending to their portfolios—a line of business that many credit unions rely on heavily today.
“I do ultimately think there's a way for this to happen,” said Lotz. “I do I think it takes a bit of creativity and a bit of technology to accomplish this. Credit unions, for all the right reasons, have rules around membership and charters to adhere to. As a service provider to credit unions that has relationships with processors and merchants, how do we figure out a way to solve this issue—so non-members can begin their BNPL purchase at the point of sale?”
Jeremiah Lotz
Similar to that indirect lending challenge of the past, which was largely resolved with CU Direct was chartered, several CUSOs are now tackling the buy now, pay later dilemma, including PSCU and CO-OP Financial Services.
PSCU’s initial release of a BNPL solution will be enabled through the credit union’s mobile application. Lotz explained the member will decide to digitally place a credit card purchase under a BNPL category instead of on the revolving monthly credit card terms.
“I buy this product online or in a store. That transaction is done,” he explained. “I’m then able to access my mobile app and view the BNPL offer on my phone. I click the button and decide how many payments I want to make, taking the credit card purchase and turning it into BNPL.”
Back to School
Lotz acknowledged that credit unions will need to educate their members on how to use a new BNPL product.
“But the good thing is they won’t have to use billboards, print ads, or begin any type of major marketing,” said Lotz. “They have the channels already in place, their mobile phones, social media advertising, those kinds of channels, which are far less expensive than traditional marketing.”
Lotz asserted that credit unions will do well in the BNPL space because members will want to keep their purchase payments with their trusted financial institution.
“I think many consumers will think, ‘Yes, this may take an extra click to work with my credit union, but that click is worth it to stay with someone I trust and has my interests and financial well-being at heart’,” Lotz suggested.
Phase One
PSCU’s BNPL product is in the final development stage and will be offered to its owner credit unions early in 2022, Lotz said.
“But, again, this will just be phase one, and we are looking to make this product even more streamlined, where the member can make the purchase right there in the store or online,” he explained. “Part of our ongoing strategy at PSCU is how do we make the overall payments experience frictionless. We ultimately hope to provide a BNPL product that members, and possibly someday nonmembers, use right at the point of sale without taking an extra step. That is definitely on our radar. Buy now pay later is going to someday be like indirect lending, where someone can use the product and join the credit union right at the point of sale. But that will take some creativity and technology to get there.”