By Ray Birch
RANCHO CUCAMONGA, Calif.—Will buy now pay later (BNPL) services become as commonplace as using a plastic card?
One analyst believes that will indeed be the case and the day is coming when BNPL becomes so mainstream that consumers will rely on the financing solution as much as they do the credit and debit cards that have become commodities.
“This product is going to change the way credit union members use personal loans,” predicted Tom Church-Adams, SVP-pay products for CO-OP Financial Services. “They will start to use BNPL as an alternative to the traditional loan applications. Credit unions must be ready to respond to that shift in their business.”
BNPL could easily become just another default financial tool that consumers have in their financial apps, Church-Adams said.
“Just like having an overdraft feature today, consumers could have fingertip access to a digital BNPL feature, putting BNPL in the category of ‘typical banking product.’ If that comes to fruition, BNPL could become an extremely large market.”
Church-Adams sees BNPL replacing a great deal of the FI offerings currently being consumed.
“BNPL is likely to begin taking over traditional personal loans in many different circumstances,” he said. “Helping that growth along will be the application experience, which BNPL integrates with a purchase. Whereas consumers have traditionally had to go through a new loan application process at their credit union or bank, they can now circumvent that step right at checkout with any one of the digital-first BNPL providers that have entered the e-commerce space.”
Credit Unions Have No Choice
Credit unions have no choice but to compete in the buy now, pay later space, insisted Church-Adams.
“It is important for credit unions to have a BNPL offering, mainly because of the expectation that BNPL will become a standard banking tool,” said Church-Adams. “Just as credit unions have had to expand into digital wallets and contactless payments, credit unions will need to offer this payment and lending option to remain competitive. Many consumer segments are expected to shift their borrowing style to BNPL. Whether credit unions want to switch to BNPL or not, the consumer trends indicate they are going to have to move if they want to meet member expectations.”
Currently, no credit union offers BNPL, noted Church-Adams.
“It’s because BNPL is still a very new product for mainstream banking providers, like credit unions and banks,” he explained. “There are only a few financial institutions offering it today. Until very recently, consumers have only had BNPL options through relationships with fintechs focused on this particular use case. Credit unions are in catch-up mode.”
The Hurdles
But there are hurdles facing credit unions looking to put a BNPL solution in front of their members.
“Whenever there’s a new type of banking technology, credit unions tend to like to see it play out,” Church-Adams said. “They want to observe through a testing period to see the innovation validated as a consumer product that’s here to stay. Because they are stewards of their members and their members’ money, they tend to be somewhat risk averse. In other words, credit unions can’t easily build out something new unless they know it’s going to become a standard tool in the industry.”
The biggest challenge to date, according to Church-Adams, has been getting credit union executives to recognize BNPL is here to stay.
“The movement benefits from having organizations like CO-OP that can build new banking tools for them, as well as help credit unions deliver those innovations,” he said. “That’s because payments and banking innovation take a large amount of ideation, research and development to build something competitive that’s attractive to consumers.”
CO-OP Developing Solution
CO-OP is developing a BNPL offering it expects will be in beta testing later this quarter, Church-Adams said, explaining the initiative involves an API-based product that works with a credit union’s existing mobile banking app.
“Credit unions that elect to offer CO-OP Pay-Over-Time Transactions, which is what we are calling the product, will have access to our integration team, which will work either directly or indirectly with the CU’s mobile banking provider to deliver the BNPL experience through existing digital channels,” Church-Adams explained.
An Expensive Offering
What has prevented credit unions to date from developing their own BNPL offerings, contends Church-Adams, is the significant investment required in product development.
“They could do this on their own. However, not every credit union has the resources to do that at the speed they need it to happen,” he said.
What credit unions must give their attention when it comes to BNPL, according to Church-Adams, is the Affirms, Afterpays and Klarnas of the world are not looking to build specific BNPL solutions for credit union members.
“They are building for the general consumer,” he said.
And the general consumer has embraced the offering as a means of paying for purchases.
Several analysts have already shared with CUToday.info their concerns over credit unions competing in BNPL due to membership requirements that can slow down what is a very quick and seamless process for consumers using non-CU applications.
To overcome that obstacle, Church-Adams said CO-OP’s BNPL product is not at the point of sale.
“It’s post-sale, as are most products delivered by credit unions,” he said. “Our product is built into an existing card agreement, so there will be no additional enrollment necessary. It will be far from clunky. We are focused on a seamlessness and friction-free experience.”
No Cannibalization
As BNPL usage grows, Church-Adams is not concerned the new service will cannibalize existing credit card business.
“I do think, however, it will enable the consumer to organize their finances to better meet their lifestyle needs,” he said. “With BNPL, the credit union is empowering members to have more control over their everyday financial decisions. Importantly, credit unions will be able to charge a fee to justify that service. I also think members who use BNPL and create payment plans will be more likely to keep their payment active accounts, and perhaps even spend more from those accounts, because they are empowered to organize their finances for improved cash flow.”
Becoming ‘Very Popular’
CO-OP’s reasons for investing in BNPL will not surprise anyone: the solution has quickly grabbed market share among digital consumers.
“We observed BNPL becoming very popular with key consumer segments, including digital natives,” he said. “This is a segment in which credit unions are working to expand primary financial relationships. Because payments are the path to the primary financial relationship today, we mobilized our development teams to help credit unions operate in the BNPL space as quickly as possible. We wanted to position credit unions to be on the front end of delivering BNPL in a more traditional way—with your trusted credit union vs. an unknown startup.”