By Ray Birch
ST. PETERSBURG, Fla.—Credit unions have long been concerned about fintechs encroaching on their business, and buy now pay later (BNPL) is likely opening the door wider for the upstarts, says one analyst.
Brian Scott, SVP and chief growth officer at PSCU, told CUToday.info he is concerned credit unions that do not respond to the rapid growth in BNPL will begin to lose more business to the fintechs—and affluent members at that.
“This is definitely a foot in the door for the fintechs,” said Scott. “It's one of those areas where there's a growing consumer need.”
As CUToday.info has reported, those four letters are being increasingly leveraged by consumers. In July 2020, The Ascent, a unit of the Motley Fool, surveyed 2,000 Americans about their buy now pay later habits. The company then followed that survey with another in March 2021, with the results showing an almost 50% growth in BNPL in less than a year.
The Big Concern
The big concern, said Scott, is members will turn to fintechs for other offerings in addition to BNPL and these account holders likely will be some of the most affluent in the credit union.
“What’s interesting about buy now pay later is who's taking advantage of it, and what we see is higher income and more affluent online shoppers are really using this option,” said Scott, adding data show this is happening. “I think credit unions may have been guilty through the years of not taking care of this segment as much as they could, or should have. I think credit unions have been really good at providing services to that sort of middle-income tier.”
Scott, saying buy now pay later is similar to credit cards, said data show consumers are using BNPL for higher-ticket items than they put on their cards on a regular basis.
‘Aspirational Purchases’
“They are using buy now pay later for more aspirational types of purchases, and looking for shorter-term payment options, saying they don't want to pay on this over 36 months like you might on a credit card,” explained Scott. “Plus, they don't want to mix that type of spend into their regular type of credit card spending. There's a fair amount of people who tend to churn the purchases they put on a credit card—like gas, groceries and other living expenses.”
Brian Scott
Those members with lower credit scores, as well, could soon be walking over to BNPL offerings such as those from Chime, Scott said.
‘Face It’
“Face it, for the most part, if you don't have a good FICO score you're not getting a credit card from credit unions,” said Scott. “That's not the case at places like Chime and some of the other fintechs offering BNPL. They're taking more risks and they're meeting those members where they happen to be on their financial journey through life.”
The convenience and flexibility of buy now pay later offerings is very appealing to consumers, especially those with more money, Scott said.
“It would be a shame for credit unions to lose members, and affluent members at that, because they do not have a buy now pay later option,” said Scott.
But that could well happen, as many of the financial upstarts offering BNPL are also offering mainstream banking products, such as checking and other types of loans.
“Credit unions could see many of their PFI members slipping away,” said Scott.
A Quick Search
Scott noted a web search for buy now pay later will quickly return five to 10 names of fintech players offering BNPL.
“Like Chime, or Klarna, even PayPal…and right now about 20% of credit union members have account at one of those Internet type of financial institutions,” said Scott. “Credit unions are really at risk for losing other types of their business to these companies, who all offer great loan rates and provide a very slick and convenient interface to do business. Too, they are making it very easy for consumers to make the switch.”
That’s why Scott believes it is imperative credit unions enter the buy now pay later space with an offering of their own.
“This is absolutely something credit unions should be putting into their product mix,” said Scott. “I do think that BNPL is not for everybody and that credit unions have to be clear about that, because I don't think you're taking a buy now pay later product down market to the lower income segments. But I think it's absolutely a product that needs to be in the mix to either attract and or retain your middle and higher income segments.”
Best Way to Begin
Scott said the simplest way to enter the BNPL space is providing more flexible payment options for the credit union’s credit cards, and when the CU becomes more experienced with the product turn to an installment loan BNPL offering.
“That would be the second phase, and the card would be the easiest way to roll this out,” said Scott.
PSCU has a BNPL offering tied to credit cards, and Scott shared some of the early results.
“It's built on the credit union credit card, and what we've seen so far is about a 50% increase in average ticket size and about 20% increase in repeat usage,” said Scott. “People who use it use this service again. I would not have said this year about this product a year ago, and BNPL is proving me wrong. People are using it and it's successful.”