Why BNPL needs to be implemented now, not later
Buy Now Pay Later (BNPL) is a concept that has been around since the 19th century, though it has recently gained traction as it has evolved into a catchphrase and is starting to cause a fundamental shift in payments dynamics.
The adoption of BNPL has been rapidly increasing due to factors, including the increased preference for online shopping in the wake of the pandemic and the convenience it offers when making payments. That being said, credit unions need to give strategic consideration to BNPL services – not as a standalone installment credit offering but as a component of a holistic product set. BNPL could offer a new source of non-interest income due to the decline in non-sufficient funds and overdraft fees.
Comprehensive credit strategy
The global BNPL market is expected to grow at a 45.7% compound annual growth rate (CAGR) through 2030, according to Allied Market Research. Most BNPL financing volume currently consists of fintech companies rather than established credit providers. Many card networks have launched their own BNPL models for consumers, but fintechs have the first-mover advantage.
Once a fintech provider has the capabilities to launch BNPL services, there is the potential to expand payments services that compete with core banking products. While many traditional institutions have been hesitant to offer BNPL, a recent survey by PYMNTS.com found that 70% of consumers would be interested in using the service if offered by their institution.
Many financial institutions allocate their focus on loans, mortgage and home equity lending, and credit cards. BNPL adoption signals the market need for another type of installment loan with defined short-term repayment cycles. Credit unions have noticed that BNPL purchases do not take away from the existing credit card purchase volume but instead serve as an extension of services. Institutions should consider addressing this product gap to retain business and increase member loyalty.
Many financial institutions are implementing BNPL to improve their consumers’ overall shopping experience. When credit unions exclude the demand for a new purchasing option from their product portfolios, other providers can establish a trusted and established relationship with consumers. Demand is increasing for BNPL services, and if credit unions do not begin offering them, they run the risk of losing portions of their members’ business.
What the future holds
BNPL proves to be a valuable addition to retaining consumers and improving the banking experience. The key to success for credit unions will be to focus on the member’s journey by targeting efforts into the digital banking experience. BNPL should not be seen as a narrow and niche product but as a logical substitute for credit card spending that could improve member relationships and loyalty. The payments market will continue to evolve, but it’s time for institutions to determine where BNPL services can fit into their strategic initiatives as most members desire to engage through one provider for all their banking needs.
Due to regulatory uncertainty, credit unions have hesitated to provide the service. With BNPL still in its early stages, regulatory uncertainty has been a critical factor in many credit unions’ reluctance to participate. Credit unions are federally insured, tightly regulated entities that have encountered the consequences of regulations that lack clarity, including reputational risk and material fines. Institutions should take a mindful and considerate approach to BNPL rather than not acting due to fear regulation. It is unlikely credit unions will engage in any aspects of BNPL that would be restrictive; therefore, any actions taken will prove to be a competitive advantage.
Credit unions need to pay attention to BNPL’s growth and understand the value it can bring to an institution’s overall banking strategy. The demand continues to grow as more consumers seek greater payment choices, and more fintechs and large corporations join the BNPL space. BNPL should be a part of credit unions’ holistic portfolios, as this dynamic payment option can no longer be overlooked.
