Thanks in part to the rise of eCommerce and digital payments during the pandemic, Buy Now, Pay Later (BNPL) offerings are popping up everywhere, from big banks to retailers. While consumers enjoy the flexibility afforded by installment payment options, credit unions have an enormous opportunity to leverage this growing trend to better serve their members and grow their primary financial 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 Uplift. Big banks including Citibank, JP Morgan Chase, Citizens Bank and American Express have also introduced installment pay programs in recent years. Even more concerning, Apple is poised to join the parade, when it launches 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.
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.
Wouldn’t it be great if your members could gain all 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 needing to sign up for a new account?
Soon they can. Part of CO-OP’s 2022 product roadmap, CO-OP Pay-Over-Time Transactions for credit unions will allow your 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.
A New Twist on an Old Game
The simple idea behind installment payments is nothing new. At its heart, such programs provide consumers with the ability to purchase an item without paying in full at the time of purchase. Whether known as layaway, store credit or retail financing, shoppers have enjoyed the ability to spread their payments over time for decades.
What is new is the massive growth of the digital channel, which has helped make deferred payment programs a seamless part of the online shopping experience for millions of consumers.
Perhaps you bought a Peloton bike to help build out your home gym during the pandemic? If so, you were likely offered an installment pay option through internet lender Affirm. If you took that offer, you weren’t alone. Affirm originates nearly $1 billion through Peloton each year, a relationship that now accounts for 28% of the fintech’s annual revenue.
Now with CO-OP Pay-Over-Time Transactions, members won’t be pressured to accept a financing offer at the point of purchase. Unlike most BNPL programs, CO-OP Pay-Over-Time-Transactions occurs post-purchase, within the member’s trusted Primary Financial Relationship. Members will be able to simply log into their credit card account through online or mobile banking, review their new posted charges, select a particular purchase, and choose to put it into an installment plan with equal, interest-free or low-interest payments.
A Matter of Trust
For members, one of the biggest benefits of the credit union-driven CO-OP Pay-Over-Time Transactions is streamlined money management. As 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. They can work comfortably within their trusted credit union’s digital ecosystem and manage all aspects of their financial lives in one place.
In addition, CO-OP Pay-Over-Time Transactions would typically 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. Not to mention that installment payment terms often feature lower APRs than straightforward credit card purchases.
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: Split payment 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 in 2022, and credit unions still have time to include it in their portfolio of products designed to deepen and personalize the member experience. The best time to have those conversations is now, as you begin your 2022 budget and planning cycle.
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.