NASHVILLE, Tenn.–The soaring popularity of buy now, pay later (BNPL) financing was the focus of a panel here, with discussion examining why it’s popular, what credit unions can offer and why, and where the risks are.
Panelists discussing the issue during the Velera THINK24 event here included Cody Banks, SVP-product enablement and growth with Velera; Robyn Galtieri, SVP-member operations and support with STCU; and C.J. Klump, senior director of consumer credit products with Visa. Lisa Santana, director, product manager with Velera, acted as moderator.
By a show of hands, only a few people in attendance said they had never used BNPL themselves.
Here's a look at what was discussed:
Santana: Tell us about the different types of BNPL and the pro’s, cons?
Banks: It’s an option right now when you check out digitally. We now know the main players—Affirm, AfterPay, etc.—have been in the point of sale space and are connecting with the merchants.
There are other options around the more traditional installments, where you are either in a post-purchase or even pre-purchase world.
We do know there are some companies out there that are focused on buy now, pay later in the debit space, but it's predominantly credit. So, those are kind of the two different sides.
With the pro’s and cons, obviously, at the point of sale you are immediately getting that offer and signing up for it. They're not doing a credit check. They're not looking at whether you can you repay this. So, there's a lot of vulnerability there that certainly exists.
Post-purchase, you're able to use your existing credit line. There are a lot of plans out there that…help you better plan, better budget some of those purchases
Santana: As far as post purchase, what is opportunity for credit unions?
Banks: I think its tremendous. I tell my team, ‘Where are your members at?’ It’s not up to us how they are transacting, it’s up to the consumer. Those digital-firsts who are looking for those different payment opportunities and younger folks see this as tablestakes, as part of financial planning.
Santana: Tell us about the popularity of BNPL.
Klump: We know there are 80 million users in the U.S. today. There are 360 million BNPL users worldwide. We’ve seen post-purchase options take off.
Santana: Very few credit unions have moved from their traditional offerings. Only 2% are offering BNPL. Why did STCU become early backer?
Galtieri: We really pressed (our provider) to get this created so we could offer it to our members. We helped to create and design it. But we have not implemented. We’re still looking at our risk tolerances. But the way designed is pretty robust and are looking at the levers we can pull to put it out to our members.
Banks: We have been in the market at PSCU for about a year and a half. We have about 30 or so clients actually using it. We have some surprising data about users. We thought the users would be Millennials and Gen Z, but those migrating to it are really across the board.
Santana: Who are the users?
Klump: They definitely skew younger. But there is fairly broad usage across the generations. I think the younger generation is attracted due to credit availability. Greater than 50% of Gen Z consumers have a subprime credit score, so getting a traditional credit card may not be an option. I think beyond availability the other aspects of BNPL that resonate with younger consumers, such as those with lower income, is the ability to pay back over time. There is the simplicity, it’s an easy user experience that is super slick. And the last thing is more around control. Younger users are sometimes scared of getting into credit and BNPL allows them control.
Santana: Are there other segments you are looking to target?
Galtieri: One of the things we’re looking at is how to take our transactors who pay off their balances and provide them with the opportunity to keep some liquidity in their accounts. So, maybe a transactor chooses to pay off, but maybe we give them the option to take six months to pay off with no interest. Now, you have an opportunity to charge a fee to create that income stream, and the fee would be less than they paid in interest.
Santana: Why do consumers like BNPL so much?
Banks: Beyond what’s said, it’s easy and convenient and can be used quickly. It’s in their face. The question for us as credit unions is how do we make sure we’re in the middle of that? How do we educate them about the pro’s and con’s of these plans?
Galtieri: I think what’s important for credit unions to be mindful of is when you are using the post-purchase, as a CU you get to decide what percentage of that credit limit gets to remain available to the member. You can control your level of exposure. Maybe you step your toe in or see how it plays out over time. It can remain within the limit you have already approved.
Santana: What about the risks?
Klump: When you look at the CFPB study of 18 months ago, credit risk is one of the concerns. They referred to it as loan stacking. There are different loans from different providers with different terms. The risk of consumers overextending themselves is there. You compound that with the fact some providers have different repayment terms. You can have multiple late fees for the same missed payment.
The CFPB’s intention is to eventually regulate this product. California is treating these products much like any other loans.
How to Sign Up For the Best Daily News Email in Credit Unions? (It’s Free!)
Every workday CUToday.info delivers the most comprehensive, freshest daily newsletter with the day’s news headlines, including links to the related articles. The Fresh Today newsletter is the most timely, relevant and widely-read source of news and information in the CU community. And it’s free!
If you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time—and it’s free!
Please note that after signing up you may need to go to your Spam/Junk folder and mark the morning headlines email as safe. CUToday.info does not provide its list of readers and emails to outside parties,
And did we mention it’s free?