By Ray Birch
SAN CARLOS, Calif.—Merchants like the slick, easy-to-use new buy now pay later (BNPL) services that are capturing the attention of consumers—and helping drive sales—but one expert is cautioning that as credit unions race to play in this space they must do so without adding clicks to the process.
“Merchants have always been willing to pay a premium for a payment service that reduces clicks and abandonment rates, increases sales or reduces fraud,” said Richard Crone, CEO of Crone Consulting.
But Crone said he has some concerns over credit unions’ ability to offer BNPL with solutions that are quick and seamless, especially with membership restrictions.
Nevertheless, credit unions can’t afford to delay, he said, pointing to the rapid growth of BNPL services that are displacing traditional credit card payments.
“They are doing so because they offer merchants these primary benefits—fewer clicks, less abandonment rates…,” stated Crone. “BNPL is here to stay and likely to gradually erode market share away from other traditional forms of credit offered by credit unions. Further challenging credit and debit card options for online payments, the fintechs and challenger neo-banks offering BNPL services typically offer the payment service for free to initially ignite demand and gain merchant commitments, a tactic not easily deployed by credit unions and their service providers.”
Ironically, for merchants, they get what they pay for, noted Crone.
Must be of Sound Mind
“No retailer of sound mind is going to add extra clicks, unnecessary steps and complicate the user experience by redirecting an unregistered new user out of their app or website for payment if it increases the risk of abandonment, reduces sales and increases fraud, especially if the app developer requires the manual entry of the 16-digit debit or credit account number, expiration date, CVC code, name, address and zip code—that’s up to an additional 70-plus keystrokes,” contended Crone, noting CU BNPL offerings might likely take the user out of a merchant’s website to close the BNPL purchase.
“If the credit union doesn’t support Google Pay, Apple Pay, PayPal or Venmo, then the credit union member will likely have to endure this purchase agony, especially if applying for instant customized credit with BNPL options,” Crone added.
What is critical for credit union BNPL offerings—and there are a number of fintechs pushing into the space with white label offerings—is overcoming any increase in purchase friction to viably compete with PayPal BNPL and the features of Google Pay, Apple Pay, with their multi-factor, biometric authentication and instant digital account opening, explained Crone.
“Merchants incur the additional costs to accommodate the consumer payment preferences of 392-plus million PayPal and 52-plus million Venmo users,” said Crone. “So, too, will merchants support new BNPL options if they wish to preserve sales. For example, merchants incur the added cost of Apple Pay on in-app purchases and ecommerce sales, which more than 90% of all online merchants already back today, catering to the streamlined payment preferences of 383-plus million Apple Pay users worldwide.”
A Lesson From Google Plex Account
Crone emphasized credit unions need to pay attention to what has taken place with Google’s Plex account. In that case, Google was co-piloting a checking account with a number of financial institutions, including credit unions, before recently announcing it was pulling the plug.
Richard Crone
Crone contends Google’s checking offering failed because the tech giant could not overcome cumbersome issues around digital account opening.
“This should be a wake-up call for the credit union movement, because the new battleground for opening new accounts is at the point of sale with BNPL,” said Crone. “There isn’t a single credit union that offers BNPL at the point of sale. There are several credit unions that actually redirect their members to third-party, non-affiliated BNPL offers.”
Crone stressed that simply offering a BNPL service and being “baked-in” to the digital account opening process at the point of sale are two very different things.
“According to research by Arizent, 72% of all BNPL is originated completely online at the ecommerce shopping cart and checkout level,” Crone said. “Credit unions can’t offer BNPL and open a new account completely online without first determining eligibility for membership, the same issues that plagued the Google Plex launch.”
Can’t Be Clunky
BNPL cannot be a clunky process, or whoever offers such a service will fail due to the nature of the transaction, Crone asserted.
“BNPL is impulse financing for an impulse buy,” said Crone. “It’s on the checkout page. Consumers generally don’t think about BNPL in advance. Merchants offer BNPL to decrease shopping cart abandonment rates, increase average ticket and make a sale. Credit unions need to look at BNPL in the same way, to increase engagement, active account usage, greater average loan relationships and more.”