Buy Now Pay Later: What Traditional Card Issuers Should Know

Buy now pay later (BNPL), also known as point-of-sale lending or POS financing, seems to be everywhere. New use cases pop up regularly, with fintechs tapping into the growing consumer demand for alternatives to traditional credit financing. Although BNPL has become one of the hottest emerging trends in payments, the concept itself has been around for quite some time.

Today, consumer financing goes well beyond simple installment loans with special interest rates. Fintech platforms have taken an existing payment solution and enhanced it in two ways to make it a very appealing option for consumers.

First, they have embraced the growing shift to e-commerce by integrating their BNPL payment features into some of the most popular brands’ shopping carts. In the following example, BNPL fintech, Affirm, is one of the payment options on the Gucci website. It’s built right into the Gucci online shopping cart, making it easy for shoppers to choose.

Secondly, fintechs have simplified account sign-up on their lending platform, removing almost all of the friction in the process. Many buy now pay later programs don’t even require a hard credit check to qualify.

As a result, customers are flocking to these point-of-sale loans, which were once used exclusively for big or planned purchases. As e-commerce continues to make strides, online shopping payment installments continue to meet consumer demand. The BNPL payment option is an easy way to extend purchasing power while staying on budget.

Fintechs specializing in POS financing saw unprecedented growth in 2020. Meanwhile, industry leaders that offer BNPL have IPO‘d while some of the veteran fintechs like PayPal have developed their own version of BNPL. Consequently, predictions for growth in the installment payments space continue to accelerate worldwide, especially in late-blooming markets like the United States.

Why Is BNPL an Emerging Trend in Consumer Lending?

In a 2020 study conducted by PYMNTS, 87% of consumers between the ages of 22 and 44 expressed interest in BNPL. These numbers match industry trends over the past few years. Many consumers did not view BNPL as a form of financing, but rather as a tool to help them budget their finances more effectively.

Consumers appreciate the transparency in knowing how much they’ll pay, how often they’ll pay (repayment term), and how long it will take them to pay in full. Buyers love payment options and BNPL services give them control over their finances and ultimately afford them the freedom to make purchases instantly versus waiting.

How Have Traditional Card Issuers Adapted Their Offering?

As customers turn to fintechs in the installment lending space, many card issuers have begun to look to BNPL as an avenue for greater participation. It can be helpful to first understand the various BNPL options commonly seen in the market today. Three main categories of BNPL, broadly grouped by when the consumer enrolls or opts in to the offering, are the most common.

• Pre-Purchase: Typically messaged as a special-financing opportunity and often accompanied with a consumer opt-in to be enrolled.
• During Purchase: Traditionally these are offered within the purchasing flow either online, in the merchant’s shopping cart or in-store at the point-of-sale terminal.
• Post-Purchase: This is the most common BNPL category. Many traditional FIs have scaled this option to allow consumers to change a standard online or in-store purchase to a BNPL purchase after the transaction.

In all three cases, the consumer is offered a special interest rate, often at 0%, or a set fee structure, for a defined term.

Which BNPL Solution Is Preferred by Consumers?

Issuers are likely asking this question. Despite the recent buzz around during-purchase, point-of-sale financing options, the truth is all three BNPL solutions are valuable to consumers.

Based on this perspective, issuers could meet customer expectations by offering the flexibility to customize the BNPL solution based on different use cases. As different customer segments gravitate to and from one offering or another, issuers can quickly pivot. Having the ability to execute BNPL in any flavor becomes a practical matter.

In general, consumers still love their existing FIs and they want to maintain their relationship with them. However, limited purchasing options can create friction during the buying process. What customers really seem to want is choice and transparency–both of which are provided by BNPL solutions. For example, customers respond favorably to payment plans and/or monthly payments.

Can i2c Help Me Deliver BNPL Products to My Customers?

Yes, the i2c platform enables our clients to build unique BNPL products of all shapes and sizes. i2c supports all three BNPL categories and includes a comprehensive suite of tools that enable clients to skip the cookie-cutter program. Our solution truly differentiates their BNPL value proposition, making customers happy.

Advanced account controls allow clients unparalleled flexibility around the types of customers, transactions and accounts they enable. With i2c, clients can tailor their BNPL product offering to the customer and make personalized product offerings that deliver value based on individual purchase behavior.

Contact us today to learn how you can get to market quickly with your own BNPL offering!