Buy Now Pay Later – No Credit Check? The Better Layaway Plan

If you’re a card issuer– whether an issuing bank, neo bank, credit union, or fintech– buy now pay later (BNPL) has been on your radar. A recent study by Cardify reported 197% year-over-year growth from 2019 to 2020 in the U.S. market, where BNPL is “still in its infancy.” In that same study, more than 75% of the customer panel chose to use BNPL even though they had the funds to cover the full cost of the purchase.

Don‘t forget to check out this buy now pay later blog post about what traditional card issuers should know about BNPL!

What Is Buy Now Pay Later?

BNPL is a payment option that enables customers to make a purchase and then pay the balance over the course of a few weeks or a few months. Does that sound like an old, familiar option called layaway? It’s a similar concept but much different in action.

As noted in a Payments Journal article, the layaway system was popularized by Kmart. It was a traditional, no-interest solution that allowed customers to pay over time and then pick up the product(s) after their final payment. The concept was a huge success during the holidays. Kmart customers loved it so much that Sears Holdings made the program available throughout the year.

At its core, layaway was an in-store loyalty program that met the needs of customers who didn’t have savings or available credit. It enabled customers to make purchases that they couldn’t have made otherwise.

BNPL Is Point of Sale Financing, Point of Sale Lending, and Point of Sale Loans

By contrast, buy now pay later programs are designed to reduce friction in the customer shopping experience, whether that’s at the point of sale (POS), pre-purchase, or post-purchase. The big difference between layaway and BNPL is that the customer takes possession of the merchandise before they’ve paid in full. Additionally, BNPL is designed to maximize share of wallet regardless of retail brands.

No Credit Check? No Interest? No Late Fees?

BNPL providers are looking for ways to differentiate their products in the market. PayPal Holdings Inc. announced August 18, 2021, that it plans to stop charging late fees for missed payments with its buy now pay later offering. This comes on the heels of Square Inc. announcing their $29 billion all stock deal to acquire Afterpay, a major BNPL player based in Australia.

BNPL providers recognize the need to set themselves apart from payday loans, which are often viewed negatively. By offering interest-free POS loans, or POS financing, these providers enable customers to bypass high-interest loans and/or credit cards. Even more, customers know the specifics of the repayment term before agreeing to the financing option(s).

The typical BNPL offering will use a soft credit check, mostly for identity checks. This means that a customer’s credit score is not a factor in the issuing process, and the inquiries on a consumer’s credit report are minimized when using BNPL options.

Customers who pay the BNPL balance on time, and within the specified payback period, can avoid interest and late fees. There are some BNPL providers that charge interest, but these loan amounts usually exceed $500.

How Can Issuers Capitalize on BNPL?

Consider some stats about the growth of BNPL provided by The Ascent.

• 55% of consumers have used a BNPL service
• 39% want to avoid paying credit card interest
• 38% buy something that’s not in their budget

Customer appetite for payment options is undeniable, and buy now pay later providers are fueling the growth. Unfortunately, traditional card issuers are losing wallet share to popular BNPL fintechs like Afterpay, Affirm, Klarna, Sezzle, and PayPal. And while the speed of information in today’s world can make it seem like these fintechs have been around for a long time, traditional bank and credit union card issuers have a major advantage as they‘ve spent decades building trust with their customers.

The Trust Factor

As an issuer, you can leverage your strong cardholder relationships to compete against incumbent BNPL providers. Your customers know you; they bank with you. Not only are you familiar to them–you are in a unique position to offer buy now pay later options based on their spending behaviors. According to a Baymard study, BNPL payment options lower shopping cart abandonment rates, which account for 7% of abandoned carts on e-commerce sites (attributed to a lack of payment options). This is good for the merchant, but it’s also good for you, the issuer.

Adding BNPL to your solution set adds stickiness to your cardholder relationship, regardless of the payment options accepted by any merchant. When your digital wallet is built on the i2c platform, you have control of payment options including debit cards, credit cards, and BNPL solutions.

Don’t give away wallet share to BNPL providers! Put the power of choice in your cardholders’ wallets today. To find out how, send us an email.