A Bright Future for BNPL Is in the (Bank) Cards

Nonbank buy now, pay later providers like Klarna, Afterpay and Apple tend to get the headlines for good (and ill), but a new study from Accenture predicts banks that tie BNPL features into their credit card programs will be the ones fueling growth in this still emerging sector. They'll also be fueling their own growth, as they use the product to gain traction with consumers who are less active in drawing on their credit card lines. In fact, if banks play their cards right, so to speak, they are poised to become the dominant players in BNPL, the study suggests.

Fintechs dominate the buy now, pay later sector, but Accenture suggests banks could overtake those competitors by capitalizing on an opportunity to blend the popular concept into their credit card offerings.

Insider Intelligence forecasts the value of BNPL payments in the United States will hit $94.9 billion in 2023, an increase of more than 25% year over year.

Accenture contends that banks can not only capture a greater share of the growing market but grow it even more by making BNPL an option for their cardholders. JPMorgan Chase and Citibank are among those that already offer a version of this, but Accenture says more banks should do so. The consulting firm lays out several promising strategies for banks in making its case.

Its proposal comes as regulatory attention on BNPL continues to grow in the United States and other countries. It also comes amid concern about consumer debt against a backdrop of inflation and a potential recession. Such dynamics generally are more challenging for fintechs to navigate than banks, which makes it a time of transition for the BNPL sector.

Accenture argues banks have the experience and the depth to grow BNPL in a responsible way in the years ahead.

Buy Now, Pay Later as Fuel for Bank Credit Cards

What’s the wattage on the bright future ahead in buy now, pay later? In a BNPL paper building on its 2022 Global Payments Consumer Study, Accenture defines the opportunity in multiple ways. Success would come in part from integrating BNPL into banks’ credit card programs, making it an option for card purchases rather than treating it as a separate credit and payments product.

The study cites Federal Reserve data indicating that Americans with bank-issued credit cards typically use an average of about 21% of those credit lines.

Utilization would increase to 26% between now and 2025 if banks embed BNPL as an option within their card programs, according to Accenture. The BNPL option would triple the number of transactions made by cardholders and double the average ticket size, the consulting firm predicts.

The Overall Size of the Market:

Insider Intelligence forecasts the value of BNPL payments in the United States will hit $94.9 billion in 2023, an increase of more than 25% year over year.

Accenture says the greatest potential is among customers with the best credit, which raises the possibility that banks could wind up courting different market segments than the nonbank BNPL players have historically appealed to. Part of the basis for Accenture’s argument is that super-prime cardholders tend to use less of their credit lines, so being able to tap an interest-free alternative like pay-in-four BNPL could prompt them to, in turn, draw on their credit card line more deeply.

This is notable because research from the Consumer Financial Protection Bureau shows that consumers with super-prime credit scores have tended to use BNPL programs less often than consumers with deep subprime scores. The CFPB research found that borrowers using this type of credit are more likely to be highly indebted or have revolving balances or delinquencies on their credit cards compared to consumers who do not use BNPL. The research also found a greater tendency to use BNPL among consumers with household income between $20,001 and $50,000, versus those with either lower or higher income levels.

Building BNPL onto cards would piggyback on an emerging trend in credit cards, in which some banks are treating the existing credit lines as a way to provide other types of pre-approved credit.

One example of this trend is My Chase Loan, which permits JPMorgan Chase cardholders to request via the mobile app that a portion of their credit line be issued as a personal loan. No new credit evaluation is involved.

To quantify the potential, Accenture posits that if a U.S. megabank with several trillion dollars of assets made BNPL a payment option from within a credit card program, it could increase total credit card income by 10%.

Read more: Banks Getting Into BNPL Should Study CFPB Complaints First

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Consider Bundling Products Like Apple Does

Adding BNPL to credit cards is only one shift among several that Accenture recommends.

Accenture makes a case for introducing bundled products that it says would be a good fit for a time of increasing economic uncertainty and rising interest rates. One example would be combining short-term interest-bearing deposits with BNPL and credit cards — a suggestion that seems very Apple Card-ish.

Helping consumers become more financially savvy should be part of the effort. The BNPL option creates “an opportunity for banks to promote financial wellbeing and help their customers optimize their finances through responsible lending,” the study says.

“This is an important move towards a more responsible BNPL model that helps customers avoid over-indebtedness, late payment penalties, and the deterioration of their credit records,” according to the study.

Big tech firms like Apple also see opportunity in the BNPL sector. So far in 2023 Apple has built out its “bank” by launching two long-awaited additions to its financial services offerings, Apple Savings, a high-yield savings account, and Apple Pay Later, its buy now, pay later option.

These are accessible to iPhone users who have an Apple Card — an integrated approach that payments experts say should be cause for more than a little concern in the banking industry.

Read more about Apple’s financial services plans:

Building on the Efforts of the Bank BNPL Pioneers

Some traditional banks and financial services companies have been offering variations of buy now, pay later for years.

For example, American Express was very early with its “Plan It” options, in which it permitted its cardholders to use the card app to take a purchase out of the normal repayment stream and adopt a plan for repayment. The program, introduced in 2017, charges a fixed fee for plans, in lieu of explicit interest charges.

“My Chase Plan” from JPMorgan Chase works similarly. From its launch in 2020 through the end of 2022, Chase cardholders have set up more than 7 million plans, the company has said. Citibank’s Flex Plan includes BNPL elements with fixed interest charges.

Both Mastercard and Visa offer technology that card issuers can use to set up their own BNPL programs, and Splitit Payments struck a deal with Visa in early May to create a new offering that integrates Visa Installments. They expect to pilot it in select markets in the second half of 2023.

With Splitit — a white-label installments-as-a-service platform for merchants — consumers have the option at checkout to pay for a particular purchase in BNPL style but via the available credit on an existing card, negating the need for new financing approval.

So far, merchant-supported BNPL programs mostly have been the domain of fintechs, with Klarna and Afterpay being two of the more popular ones. The fintech players also have been moving further in the direction of positioning themselves as payments platforms, rather than exclusively for buy now, pay later.

But a few banks have worked on the merchant side as well. One example is Citizens Pay, in which Citizens Bank offers tailored BNPL plans to merchants. The bank has been providing these services since 2015, but rebranded and expanded the effort in 2021. The programs are designed with different features, based on the merchant’s needs. Some offer 0% financing to consumers, while others include interest charges.

In an interview with The Financial Brand in summer 2022, a Citizens Bank official said the merchant base for Citizens Pay numbered in the dozens. But it had grown to 150 by the end of 2022.

Growing BNPL Player:

According to Citizens Bank’s 2022 earnings report, Citizens Pay added about 150 merchant partners during the year, and the delinquencies and chargeoffs in that portfolio were trending better than the bank’s prime credit card portfolio.

Several BNPL Growth Strategies for Banks to Consider

Accenture’s study sketches out how banks can increase their involvement in buy now, pay later using a “follow the customer” strategy or a “follow the seller” strategy.

In the first strategy, one approach is to make BNPL part of the credit card service, which is the option that Accenture favors for its potential to grow card usage. This is what Amex and Chase are doing. Here, the bank “owns” the customer relationship.

Another approach in the “follow the customer” strategy is offering explicit payment plans at a merchant’s point of sale, similar to what Klarna does. This ensures the bank’s BNPL service is visible as one of the payment choices at the time of purchase, but in this case the retailer “owns” the customer relationship.

The “follow the seller” strategy also has two approaches. One entails the bank designing the payment flow around the type of purchase. An example Accenture cites is Capital One’s BNPL options for consumers using its cards for travel-related purchases. This allows the bank to retain control of the relationship. Another approach is embedding the bank’s service in the merchant’s own card or other financing options, such that the bank’s role is completely behind the scenes.

Read more:

Regulatory Scrutiny of BNPL Could Benefit Banks

The CFPB has been studying buy now, pay later and gathering data that has come out in multiple reports. Director Rohit Chopra has made it clear that he wants nonbank BNPL firms to be regulated in some form.

However, despite this being a topic of discussion and investigation since 2021, the matter of proposed BNPL rules curiously does not appear on the bureau’s most recent regulatory agenda. Federal agencies publish these semiannually to indicate what they have planned.

The Accenture study suggests that traditional banking players, having endured decades of federal regulation, will be at an advantage should the newcomers come under a regulatory regime. You might say that the traditional players have been paying off their regulatory debt in installments.

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