Banks Can Compete In BNPL, But Must Build Consumer Awareness at the POS, J.D. Power Says

While the growth in buy now, later loans is prompting card issuers to enter the fray, one challenge they face is creating awareness, as card issuers do not make their BNPL offerings available at the point-of-sale.

This is unlike BNPL specialists such as Affirm Holdings Inc., Klarna AB, and Sezzle Inc., according to a report by J.D. Power.  

One factor driving card issuers’ entry into the BNPL arena is the rapid growth in active BNPL accounts. As of January, 22% of consumers had an active BNPL account, up from 18% in October 2022, and 14% in July 2021, the report says. The growth is driven by the convenience of opening a BNPL account at the point of sale and the additional buying power the loans afford consumers, according to John Cabell, managing director, payments intelligence for J.D. Power.  

To tap into the fast growing BNPL market, card issuers are offering cardholders the opportunity either to convert balances on card purchases to fixed, monthly payments for a fee, or to take a fixed annual percentage rate that is lower than the current rate on their card balances.

While that strategy has been successful for several large issuers—such as American Express Co., JP Morgan Chase, and Citicorp—card issuers face an uphill battle in that their BNPL offerings are marketed as a feature of their cards, as opposed to a separate product that can be pitched at the point of sale.

“BNPL providers and fintechs strike deals with merchants to offer BNPL as a payment option at the point of sale, and while it is possible for card issuers to do the same, they would have to create their own BNPL solution, as opposed to making it a feature of their card,” Cabell says.

That doesn’t mean card issuers can’t effectively compete in the space, Cabell says. Building consumer awareness of BNPL offerings is key for card issuers, but doing so requires them to shift their thinking from traditional card-acquisition strategies to make their BNPL offering top-of-mind with consumers, especially as they are making a purchase.

“It is more challenging to compete in BNPL when it is offered as a card feature, but as card issuers build awareness of their BNPL offerings, cardholders will begin to think more about using that feature, even at the point of sale,” Cabell says.

Overall, BNPL is expected to reach $680 billion in transaction volume worldwide by 2025, according to eMarketer, up dramatically from $20.8 billion in 2021, according to an Accenture study commissioned by Afterpay, the buy now, pay later service owned by Block Inc.’s Square.