In response to rising member demand, financial institutions are offering their own Buy Now, Pay Later (BNPL) programs. Last year, with the launch of SpendFlex, FedFinancial Federal Credit Union (FedFinancial) became the first credit union in the DC, Maryland, and Virginia area to bring BNPL to their members.
Recently, FedFinancial’s JJ Johnson and Carlton Brooks joined an interview with The Credit Union Connection to explain the strategy behind launching SpendFlex.
“SpendFlex gives us an opportunity to let members flex their budgets in a personalized, meaningful way,” said JJ Johnson, FedFinancial’s COO. “We're just trying to reach a younger generation as they start to come into the workforce.” Before SpendFlex, JJ noted, members would use their debit cards but go to third-party providers like PayPal and Affirm for purchases that they would like to split payments on. SpendFlex was designed to offer a unified purchase and payment experience in FedFinancial’s digital banking app.
Carlton Brooks, FedFinancial’s Director of Lending, added that the credit union had been seeing a decrease in personal loan applications, which prompted the team to research where else their members were looking for financial flexibility. “A lot of them have already embraced [third-party] Buy Now, Pay Later,” he remarked. “It was significant enough that we needed to try to meet our members’ needs as their trusted financial institution.”
The advantage of credit union BNPL
What is the advantage of credit union BNPL? The trust.
“[The members] already know us. And we know them,” Carlton explained. “So we're not a third-party organization or FinTech offering this type of solution. There's trust there. Our goal is to create a value added product for our members, and also to attract new members. And if those new members are of a younger generation, then it’s a win for us.”
“We're looking for increased activity,” JJ added. “When they go to the mobile app from SpendFlex, it gives us increased opportunities to reach that audience. And I think it's definitely going to make people want to utilize our services more. That's what we really want to hear people say: ‘I get everything I need at my credit union’.”
A tool for teaching financial literacy
SpendFlex was designed to encourage account maintenance and good budgeting habits, and Carlton believes SpendFlex could also be a valuable tool in teaching financial literacy. “Young people really need a product like this tied to their financial institution,” he explained, “because the better you keep your account, the more offers you're going to see.”
“Young people really need a product like this tied to their financial institution,” he explained, “because the better you keep your account, the more offers you're going to see.”
“It is always important to keep your account in good standing and not have an NSF or overdrafts happening,” he continued. “I do believe this is a product that will help them budget better. It keeps them from having to take out credit with a high interest rate that could hurt their credit score down the line. Such that when they're trying to buy a home, they can't do it. I think this is a great way to actually teach financial literacy and have people take more control over their account.”
Building the banking relationship
The average age of a credit union member today is 53, and this is an issue that FedFinancial is proactively addressing by offering a payment preference younger consumers prefer.
“I’ve seen a drop in loan applications, especially with young members not knowing how to navigate this banking relationship,” Carlton explained, which is what makes launching SpendFlex important. “We want to be a transactional institution, and if members use us every time they are shopping, then this will help us get to a point where we are their preferred payment option.” The goal, Carlton said, was to eventually become their primary financial institution, or PFI.
“We want to be a transactional institution, and if members use us every time they are shopping, then this will help us get to a point where we are their preferred payment option.”
“Today's kids want answers now,” JJ agreed. “They don't want to wait to fill out an application, wait for the approval, wait for the funding they want. SpendFlex is available on their mobile banking app and they can get those quick answers. That's going to entice them to come join the credit union. At the same time, I think our older members will be just as interested in the product once they get the hang of it.”
A window of opportunity for BNPL
Split payments can be found not only from credit unions, but also from financial institutions such as US Bank and Chase trying to meet the needs of their existing cardholders and to acquire new ones. Since consumers have yet to develop brand loyalty to BNPL providers, this is a unique window of opportunity for FedFinancial FCU, and for institutions of all sizes to compete.
FedFinancial is a credit union serving federal employees in the DC, Maryland, and Virginia area.
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