How Does Your Credit Union Stack Up to Growing BNPL Competition?

The competition for providing buy now, pay later (BNPL) services is growing. From fintech to retailers to large tech companies, every player along the purchase-to-payment shopping journey is looking to become the go-to payment option by providing the most preferred payment solutions. In other words, BNPL’s popularity is being leveraged as a customer acquisition tool to not-so-slowly attract cardholders away from their trusted financial institution.

So as a credit union, what can you do about it?

BNPL Is Now a Table Stakes Payment Solution

BNPL isn’t going away. It makes larger expenses affordable, breaking them down into more manageable payments over time. It’s embedded into many shopping experiences so that consumers can accept the loan and make the purchase quickly. This is particularly attractive to members of the younger generation, who are digital-first, and to those who are averse to traditional credit products. With competition rapidly increasing and BNPL projected to grow from $22.9 billion in 2022 to $90.5 billion in 2029, according to a Barclays report, it is pivotal that credit unions provide services that appeal to their members as well.

Apple and PayPal are just a few of the many competitors entering the BNPL market. Last year, just in time for Black Friday shopping, Amazon partnered with third-party BNPL provider Affirm to give Amazon Prime Members the chance to spread their purchases above $50 into monthly installments with no late fees and no credit cards necessary. This partnership is a validation of the power of BNPL when it comes to customer acquisition.

With mounting economic pressures this year, most consumers can’t cover an unexpected $400 expense, according to the Federal Reserve, and having access to the right financial tools is essential to meeting the needs of consumers. Sixty-nine percent of U.S. consumers reported an interest in BNPL to pay for necessary expenses such as car repairs, eyewear or dental care in a Harris Poll survey. Cardholders are looking for ways to make payments more feasible for their financial needs. Many of them will be turning to BNPL.

How Credit Unions Can Enter the Playing Field

BNPL’s meteoric rise in popularity has earned cautionary looks and regulatory attention. This is a testament to its staying power as well as the friction that exists in current solutions. Here’s the good news, according to Fox Business: More than 70% of BNPL users said they’d be more interested in BNPL if it was backed by their primary financial institution, and there is little question as to why.

Today, the payment ecosystem is fragmented and difficult to navigate for cardholders. There are many third-party players, none of which have a credit union’s knowledge of their cardholder’s financial health and goals. The onus is also on the user to manage their loans across multiple BNPL providers and reconcile the monthly withdrawals from their checking account. Meanwhile, financial institutions can provide BNPL solutions as a “one stop shop.”

Find Out How Your Credit Union Stacks Up

Despite having the potential to be a top competing force, credit unions are some of the last to enter the BNPL field of competition. Credit unions that are not offering BNPL risk losing their position at the top of the wallet for their members.

Start by assessing how many payments are being made to third-party BNPL providers. Is there an increase of third-party BNPL transactions around shopping events like Prime Day? While transaction data doesn’t show the full extent of BNPL uptake, it is a good indicator of the shift in cardholder payment preferences.

Then look at whether there is a correlation between third-party BNPL use and financial frictions such as overdrafts. How can you step in to help these members? What can you do to help your cardholders in the future?

And finally, how far away is your credit union from offering your own BNPL solution for your members? The best defense is a good offense, and that is to provide a direct BNPL solution from you, their trusted financial institution, built with your members’ financial health in mind.

Bryce Deeney is the Co-founder and CEO of equipifi, a Scottsdale, Ariz.-based provider of BNPL solutions for banks and credit unions.