GAINESVILLE, Fla.—A number of years ago, when these new plastic things called credit cards were introduced, credit unions viewed the new offering much the same way they are viewing the “buy now, pay later” products now making their debut today. There’s a lesson to be learned there, according to one expert, who is cautioning the new offering is “something to be reckoned with.”
“If buy now pay later continues to grow… go back to when credit cards really started to take off. Just about every bank and credit union got into credit cards as soon as that happened,” said Bill Hardekopf of CardRates.com. “I think banks and credit unions might start getting very involved with buy now pay later (BNPL) if consumers continue to migrate toward it.”
As CUToday.info has reported, “explosive” growth of buy now pay later solutions will only continue to surge.
In July 2020, The Ascent, a unit of the Motley Fool, surveyed 2,000 Americans about their views on buy now, pay later products. The company then followed that survey with another in March 2021, with the results showing an almost 50% growth in BNPL usage in less than a year.
The growth in BNPL, which started well before the pandemic hit the U.S., has only accelerated as more people have stayed at home and significantly increased their online purchases.
“I do see it as a significant new competitor to credit cards and debit cards, and for banks and credit unions,” said Hardekopf. “It's really tailor-made for online shopping, and as we know that's where the world is moving toward.”
Hardekopf noted the number of BNPL offerings skyrocketed last year.
“There's just a ton of them now,” he said. “And it's so easy to use them. Websites just put a little widget next to the online shopping cart or on the checkout page, and it's really one click and you’re done. This is going to be a game changer, affecting all card issuers.”
Appeal to a Younger Generation
Ease of use is one of the most appealing aspects of the new service, especially with younger generations, Hardekopf stated.
“It's not like you have to enter in your credit card number and all this other payment information,” said Hardekopf. “It's just a click and go and it's so different than paying with a credit card.”
What is also appealing about the new school BNPL, said Hardekopf, is that it is much like the old school layaway plans used by people, often to pay for Christmas gifts. He said the new offerings have the same appeal and more—like a layaway plan on steroids.
Bill Hardekopf
“You remember the layaway plans that your mom and dad used, after a certain number of payments, you make the last one and the purchase is yours,” he noted. “But with buy now pay later it is the opposite. After you make your first payment, you get the product. Instant gratification. It has a lot of pizzazz, a lot of appeal, and ease and convenience. It's just adapting the layaway plan and twisting it to today's society.”
Concerns for Consumers
But Hardekopf has some concerns for consumers about BNPL, largely around how there are so many different choices that have so many different rules, especially when it comes to doing a hard credit pull.
“I would just say to consumers is that when you click on that little widget on the website you need to know what you're getting into,” he said. “You need to read the terms and conditions.”
With credit cards, Hardekopf noted most people understand how their plastic works.
“People may not realize there can be a huge difference between each of these different buy now pay later services,” Hardekopf said. “They vary as to how much interest they charge, how many payments are required, and do they report to a debt collector or a credit agency? You also need to know if when you sign up if the service is doing a hard pull on your credit.”
Hardekopf added that if consumers are not aware the a BNPL platform is performing a hard credit pull, as they make many different purchases on many different platforms it could result in a number of hard pulls on their credit file and a resulting decline in a credit score.
‘Something to be Reckoned With’
Hardekopf expects the buy now pay later solutions and offerings are only going to continue to grow even after the pandemic is over, with data showing consumers have turned more to BNPL during the pandemic not only for convenience, but to also conserve cash due to economic uncertainty and as a means of obtaining more credit in the event of a job loss.
“They may want to keep their credit card balances down, in case they need to use them later,” he said. “Or, they may have maxed out their lines of credit… I'll tell you what—Visa and Mastercard have formed a partnership to create a BNPL service called Splitit. American Express started one called Plan It. If American Express, Visa and Mastercard are jumping in on this, it's something to be reckoned with.”