Buy Now, Pay Later (BNPL) offerings are popping up everywhere, from big banks to retailers to fintechs. While consumers enjoy the flexibility afforded by installment payment options, credit unions have an enormous opportunity to leverage this growing trend to improve their member relationships.
According to a report from Financial Technology Partners, the total market potential for installment-type programs is $5 trillion in the U.S. alone. Worldwide, the channel will account for over 4% of payment transaction volume by 2024, a 100% jump from 2020.
The market is currently dominated by fintech upstarts like Affirm, Klarna, Afterpay and Zip. Big banks including Citibank, JP Morgan Chase, Citizens Bank and American Express have also introduced installment pay programs in recent years. The latest to enter the BNPL market: Apple just launched its Apple Pay Later program with Goldman Sachs as its partner lender. The convenience of financing a purchase at the point of sale right from your iPhone will certainly be attractive to many consumers.
But unique among financial services providers, credit unions are in the perfect position to get in the installment payment game.
“It is important for credit unions to have a BNPL offering, mainly because of the expectation that BNPL will become a standard banking tool,” said Tom Church-Adams, SVP-Pay Products, Co-op Solutions. “Just as credit unions have had to expand into digital wallets and contactless payments, they will need to offer this payment and lending option to remain competitive. Many consumer segments are expected to shift their borrowing style to BNPL. Whether credit unions want to switch to BNPL or not, the consumer trends indicate they are going to have to move if they want to meet member expectations.”
“It is important for credit unions to have a BNPL offering, mainly because of the expectation that BNPL will become a standard banking tool. Just as credit unions have had to expand into digital wallets and contactless payments, they will need to offer this payment and lending option to remain competitive.”
Tom Church-Adams, SVP-Pay Products, Co-op Solutions
Co-op is developing a BNPL offering called Co-op Pay-Over-Time Transactions for credit unions that will allow members to make purchases using their go-to, top-of-wallet credit card, and then choose how they pay it off within their existing credit union banking app. The solution involves an API-based product that works with a credit union’s existing mobile banking app.
“Credit unions that elect to offer CO-OP Pay-Over-Time Transactions will have access to our integration team, which will work either directly or indirectly with the CU’s mobile banking provider to deliver the BNPL experience through existing digital channels,” Church-Adams explained.
Most current payment plan programs are offered by independent companies partnering with a retailer to offer point-of-purchase financing. Consumers typically don’t have a relationship with these companies and may have never even heard of them.
By contrast, Co-op’s Pay Over Time Transactions product is not at the point of sale, but post-sale as are most products delivered by credit unions.
“Our product is built into an existing card agreement with credit union members, so there will be no additional enrollment necessary,” said Church-Adams. “Members gain all of the benefits of paying for their purchase over time, in regular installments, at a low interest rate and within their trusted credit union relationship without the need to sign up for a new account. We are focused on a seamlessness and friction-free experience.”
A Matter of Trust
For members, working within their trusted credit union’s digital ecosystem they have the control, flexibility, and confidence to use a BNPL solution to manage their finances.
One of the biggest benefits of the credit union-driven Co-op Pay-Over-Time Transactions is streamlined money management. Compared with most installment programs, borrowers won’t have to manage multiple accounts and worry about setting up recurring payments or transfers from one institution to another. Co-op Pay-Over-Time Transactions would be set up under the member’s current credit line, so it would not generate any new inquiries that could affect the member’s credit.
For credit unions, Co-op Pay-Over-Time Transactions offers new opportunities and benefits, including:
- Manage risk: Co-op Pay-Over-Time Transactions can help mitigate and diversify risk in your loan portfolio. Installment loans present lower delinquency and loss rates because borrowers tend to pay them back more quickly than revolving balances.
- Retain existing members: If you charge an annual fee for your credit rewards programs, card cancellation rates always peak at annual renewal. But if the cardholder is midway through paying for their new refrigerator from Home Depot using Co-op Pay-Over-Time Transactions, they are less likely to close out their credit line and more likely to keep it top of wallet.
- Grow membership: BNPL programs are proving attractive to shoppers across the demographic spectrum, from Gen Z to Boomers, and credit unions can attract new members by offering new, innovative programs through the digital channel. An estimated 45 million Americans are active users of BNPL loans, according to a September 2021 Accenture study commissioned by Afterpay, while an astounding 80% of BNPL transactions were done by people ages 19 to 34.
- Increase spend: Two-thirds of respondents to a LendingTree survey of 1,040 Americans said that using an installment payment service caused them to spend more than they would otherwise. Adding Pay-Over-Time Transactions as a feature within your comprehensive credit payment program provides members with an additional option for financing post-purchase, leading to higher usage and larger transactions.
Now is the Time to Begin Your Pay-Over-Time Transactions Journey
Co-op Pay Over-Time-Transactions will be available to our full-service credit clients initially, and credit unions still have time to include it in their portfolio of products designed to deepen and personalize the member experience.
Also, make sure to coordinate this project with your digital banking provider, as Co-op Pay-Over-Time Transactions is designed to be incorporated seamlessly into the digital channel via application processing interfaces (APIs).
Co-op has listened to you – our partners in the cooperative movement – and added Co-op Pay Over-Time-Transactions to our product roadmap to meet an urgent and growing need in the financial marketplace. This solution is built specifically for credit unions and designed to help your members achieve their financial fitness goals. We look forward to supporting credit unions as you grow your foothold in the exciting and dynamic digital payments experience.
The original article How an Installment Payment Program Helps Credit Unions Compete can be found on Insight Vault.
