Credit card heavyweights, who have long shown little distress over buy now / pay later competitors, are beginning to recognize the need to match the offers of those upstart companies.
In recent days, some major card issuers have announced new BNPL offerings or signaled that they are closer to doing so. Its products are poised to compete with short-term installment loans from fintechs like Affirm, Afterpay, and Klarna, which market to millennials and Gen Z consumers, and promote their products as easier-to-understand alternatives to Credit cards.
Last week, Synchrony Financial, which is partnering with credit card merchants, said which will add a “Pay in 4” loan that retailers can choose to offer to their customers.
And this week, executives from a trio of banks spoke at an industry conference about their plans in the buy now / pay later market.
Capital One Financial announced that it will test a BNPL product with a subset of merchants and clients. US Bancorp said it is also testing buy now / later, and a senior JPMorgan Chase executive advised investors to “watch out” for information about the bank’s work in the buy now / later later category.
Those lenders were “caught a little off guard” early in the COVID-19 pandemic, when a boom in e-commerce sales benefited BNPL providers whose loans were embedded on merchants’ websites, Sanjay Sakhrani said, Keefe, Bruyette & Bosque analyst.
Since then, incumbent card industry operators have developed their capabilities and are now ready to bring similar products to what will become a more competitive market, he said.
âMany of the fintech companies have created an experience and, obviously, a brand in many cases that consumers like and trust,â Sakhrani said. “But on the other hand, so have legacy traditional consumer lenders, and I hope they will take advantage of that to compete in the market.”
BNPL’s funding boom has led to some headline-grabbing deals, with Square agree to buy Afterpay for $ 29 billion and Amazon saying you are testing the Affirm product with a limited number of customers. PayPal also competes in the market and Apple it is reported to be developing a product with Goldman Sachs.
Buy Now / Pay Later companies generally offer interest-free financing to consumers, with short-term, four-installment loans. Suppliers generate much of their income from retailers, who often pay higher fees than they pay for credit card transactions.
To some extent, credit card companies began offering buy now / pay later capabilities years ago, said Yanni Koulouriotis, vice president of rating agency DBRS Morningstar. In 2017, American Express launched its Plan It feature, which allows customers to convert purchases of $ 100 or more into installment loans instead of revolving card debt. Citigroup later unveiled a similar product.
Now, card issuers are looking to dip their feet deeper into the water, even though plastic remains the dominant method of financing online purchases.
JPMorgan Chase implemented installment loan options in 2019, allowing card customers to borrow a certain amount against their available credit through My Chase Loan, along with an offer that allows borrowers to pay for larger purchases over time. over time through fixed payments.
While JPMorgan does not have a buy now / pay later program available to consumers who lack Chase credit cards, that could change in the future, according to Marianne Lake, the company’s co-director of community and consumer banking, who spoke. Tuesday at the Barclays Financial Services Conference.
America’s largest bank by asset has several advantages going for it, including a customer base of more than 60 million households and a reputation as a reliable payments provider, Lake said.
“We may not be the first to move to buy now / pay later, but we have the full suite of commercial and pay-loan capabilities, and in the long run I think that’s the bigger picture,” he said. âWe have the customer base and the distribution, so we are working on all of that. So stay tuned. “
US Bancorp is also exploring the buy now / pay later market. Company executives said Tuesday that a BNPL option could complement the bank of Minneapolis’ significant payments business, which includes credit and debit cards, corporate payment products and business processing services. Payment income represented 26% of the asset bank’s net income of $ 559 billion in the second quarter.
“Buy now / pay later is a phenomenon we are looking at, and we actually have some test cases underway,” said CEO Andy Cecere. “I think it is a capacity that we want to continue.”
Capital One will test its own BNPL product later this year with certain existing customers and merchants, CEO Richard Fairbank said at the conference on Monday, although he declined to provide further details.
The McLean, Virginia-based bank’s entry into BNPL is particularly notable given its earlier pullback against such products. Last year, Capital One banned the use of its credit cards for payments on all types of point-of-sale loans, although customers can use their Capital One debit cards and checking accounts for buy now / pay later transactions. .
Fairbank targeted existing buy now / pay later providers, noting that they make substantial margins on every purchase and that “the elephant in the room is the sustainability of the trade subsidy.”
For their part, buy now / pay later companies say their trading partners get a boost in sales thanks to their flexible payment options. Afterpay’s website, for example, says the company has helped increase the average value of its merchants’ orders by as much as 40%.
Affirm says on its website that merchants see a 20% repeat purchase rate and that adopting the company’s BNPL offering can give customers “even more reason to come back again and again.” The Klarna website states that up to 40% of the company’s sales come from new customers and that its products give customers “maximum flexibility and keep them coming back for more.”
In announcing Synchrony’s Pay in 4 product, CEO Brian Doubles said that while many existing partners have expressed interest in buy now / pay later offers, they are “really thinking about the economics” and making sure they don’t lose any additional revenue.
Synchrony’s offering will launch in October, and the company says merchants will find its product attractive because it will give them another option to reach customers. For example, a new customer can finance a purchase through a buy now / pay later loan and then open a retail credit card for repeat purchases.
Increased competition from banks is sure to lead to a squeeze in existing buy now / pay later margins, said DBRS Morningstar’s Koulouriotis. Still, BNPL’s purchases represent a small part of the market, and “the jury is still out” on whether they will be a game changer in the long term, he said.
Some consumers may be much more interested in credit card rewards than financing their purchases over time, Koulouriotis noted. “There is room for both,” he said.