4 Questions Credit Unions Ask About Buy Now, Pay Later

The inaugural Insights and Innovation in Buy Now, Pay Later Digital Forum took place on August 23, 2023 with over one hundred leaders from credit unions and community banks in attendance. With an action-packed agenda on the state of the BNPL industry, credit union guest interviews, and member stories, we had to cut our Q&A short and follow up post event to answer the excellent questions asked throughout.  

Now, here are our answers to four of the question that were asked: 

Why the focus of BNPL on debit cards? What about credit cards? 

Did you know that 92 percent of BNPL users in the United States are debit card users, versus 8 percent that are credit card users? When looking only at third-party BNPL figures, 89 percent of all repayment is done on the debit card. That means most US consumers are taking out BNPL loans via non-bank credit providers and making those loan payments with their debit card. This outflow of cash represents interchange and member engagement that their primary financial institution used to receive. 

More importantly, by unlocking split payments, financial institutions are keeping their debit cards competitive to meet consumer preference.   

For years, companies like Affirm, PayPal, and Apple used BNPL as an acquisition tool in order to release their own financial products - becoming both a loan provider and offering deposit products such as checking and savings accounts. Now, with Affirm’s debit card, over 70,000 new debit card accounts are being activated every month. As one of our credit union partners said:

“We want to meet our members where they are and offer a better alternative. That is the credit union way.” 

So the question isn’t “why focus on debit cards”. But rather “do financial institutions want to  lose their debit cardholders to BNPL providers”?

How have members been reacting to their CUs announcing BNPL? 

Very positively. Consumers have been using BNPL for years from far less trusted credit providers than their financial institutions. This is evidence enough of that. Meanwhile, credit unions who have launched BNPL have seen their members use their BNPL solutions immediately. One credit union even saw their members use their CU BNPL at the same volume as their members used all third-party BNPL solutions combined. Anecdotally, credit unions have shared that non-members expressed interest in opening an account with them upon learning about the ability to use BNPL on their debit cards. 

What does this tell us? That more and more, consumers are budgeting at and near their point of purchase, and thus require a budgeting tool that is plugged into their purchasing process. Payment options that lack this will lose wallet share.  

How many BNPL loans can financial institutions expect to see every month? 

The amount of BNPL loans financial institutions can expect to see upon launching their own BNPL solution is dependent on the demographic of the membership served. Since financial institutions fully customize the loan parameters based on the institution’s BNPL strategy, there is also a tradeoff between user engagement and risk tolerance. To quote Jessica Hernandez in Generations FCU’s session:

“Financial institutions that are still considering BNPL, get the data over to equipifi and let them tell you how this could look. Once we got that information, [BNPL] was a no brainer for us.” 

If you want to see an estimated loan volume for your financial institution based on typical usage, reach out to our team to do a pro-forma.  

What are you seeing in terms of fraud and delinquencies with BNPL, and how should FIs be prepared for that?

We do not see BNPL related fraud when provided by financial institutions. This is because BNPL offers are presented and accepted entirely within the financial institution’s authenticated digital banking session.

Because the offers are only presented to existing members who are qualifying based on the financial institutions risk tolerance, fraud concerns that third party BNPL providers must mitigate aren’t a concern for the primary financial institution.

Thanks so much for your questions and your engagement! We hope to see you next year. Missed the live event or just want to relive the highlights of the digital forum? Watch it again here.

Insights and Innovation is the first and only event for financial institutions unlocking Buy Now, Pay Later (BNPL) on their digital banking experience. Over 100 leaders from credit unions and banks signed up to hear from experts in consumer behavior, commerce, and retail banking about industry trends and BNPL user stories. Credit union leaders from Associated Credit Union of Texas and Generations Federal Credit Union also attended as guest stars to share their own BNPL journeys and member stories.