By: Cody Banks, MVP, Payments and Fraud Strategy, PSCU 

What started and was rapidly adopted by a subset of consumers searching for more ways to budget and improve finances, Buy Now, Pay Later (BNPL) – or installment payments – has quickly become a mainstream payments offering. In fact, BNPL is practically ubiquitous: virtually every large and midsize merchant in developed economies has considered, is in the process of launching or has already launched a BNPL solution. 

The Current BNPL Market 
The effects on the U.S. economy from the COVID-19 pandemic set the stage for BNPL lending and its rise to stardom. Fast forward to today and, according to Mercator Advisory Group, more than 50% of U.S. consumers have used a BNPL option in the past 12 to 14 months. And according to PSCU’s 2021 Eye on Payments study, 61% of respondents who know their financial institution offers BNPL have used this option. Aite-Novarica’s October 2021 Buy Now, Pay Later Market Overview Report notes installment solutions offered by seven of the leading BNPL vendors are currently serving more than 800,000 merchants and over 100 million consumers. 

It is easy to see why BNPL quickly rose to popularity. For consumers, BNPL offerings are easy to use and convenient, and allow them to play a more active role in managing their financial lives. According to Aite-Novarica, BNPL vendors indicate their merchants see conversion rates improve by 20% to 30%, as offering installment options helps shoppers see a purchase as more affordable, resulting in lower cart abandonment rates. In addition, merchant partners see up to 55% of BNPL users making repeat purchases. Merchants also report experiencing higher basket sizes, with average order value increasing by 40% or more after adding BNPL to their checkouts. 

Per Aite-Novarica, BNPL retail e-commerce volume was approximately $500 billion in 2020, up 28% from 2019. At the end of 2020, BNPL spend in retail e-commerce was projected to grow to more than $1.2 trillion by 2024, a 25% compound annual growth rate (CAGR). In actuality, total BNPL spend by that point is likely to be even higher than originally projected when considering the recent expansion of BNPL offerings, which includes the physical point of sale (POS), PayPal’s entry into BNPL in late 2020, Amazon’s partnership with Affirm, Square’s acquisition of Afterpay and the proliferation of BNPL providers targeting non-retail verticals. 

Credit Union Considerations 
With online purchases continuing to grow exponentially, consumers are beginning to experience and appreciate the ease of use associated with BNPL. Demand for this convenient payment option has grown tremendously and is expected to continue to increase. 

As such, a BNPL option is becoming table stakes for some financial institutions. For credit unions in particular, the BNPL market is a space worth considering when it comes to growing portfolios, attracting new accountholders and creating more solution offerings. The call to action was clear in a recent PYMNTS.com survey released last month, where three quarters of consumers who use BNPL from the top three providers were interested in switching to a financial-issued plan. 

How should credit unions best approach a BNPL offering? First, choose and develop your installment plan through a BNPL vendor. Options include pre-purchase (consumer opts-in for installments prior to making the purchase), at-purchase (consumer is prompted at merchant checkout to pay with installments) or post-purchase (consumer converts a recent credit card purchase into installments). For a credit union’s first BNPL offering, pre-purchase or post-purchase are recommended as card issuers have more flexibility with these plans based on cardholder history, existing credit lines and regular cardholder interactions. 

Once your plan is in progress, consider the following steps:

• Promote: Execute promotional activities to position your credit union’s debit or credit card as the card of choice among members interested in setting up installment plans. This will continue to drive interchange revenue, deposit balances and brand visibility for your institution.
• Partner: Facilitate partnerships between your merchant accountholders and BNPL providers. For merchants, the best way to drive loyalty is to help them optimize their businesses, and installment payment options are well on their way to becoming a necessity for businesses everywhere. Consider partnering with a trusted, credit union-focused BNPL provider and leveraging their analytics to meet members where they are in their financial journeys. Remember that consumers expect a digital-first experience, so any product launch should be embedded in this journey.
• Educate: Take the opportunity to educate members about BNPL offerings and why solutions like this can benefit their overall financial wellness, providing them with an additional budgeting tool to better manage their finances.

To say the future is bright for BNPL is an understatement, and now is the time for credit unions to begin planning for and launching these offerings to members in order to continue growing and succeeding in the current financial services market. 

Cody Banks leads PSCU’s payments, fraud, loyalty & contact center product teams. In his role, Cody focuses on developing and delivering safe, easy and convenient payments experiences for the company’s Owner credit unions. Prior to joining PSCU in 2017, Banks spent nearly 10 years in the credit union industry navigating complex initiatives with a focus on journey mapping of the member experience.