How financial institutions can design a balanced BNPL solution

Bryce Deeney, Co-founder and CEO, equipifi

Buy Now, Pay Later is growing in popularity as the preferred payment method for financial flexibility. With rising costs, the acceleration of e-commerce, and the accessibility of BNPL for consumers with a variety of credit backgrounds, major players such as fintechs, large technology firms, and now financial institutions are jumping on this payments trend. 

BNPL has expanded in use cases and become more pervasive. As financial flexibility becomes a pivotal consideration for making purchases, many consumers are increasingly turning to BNPL for their everyday shopping. This trend is so impactful, in fact, that whoever unifies the entire purchase-to-payment journey under one user experience has the potential to not only establish themselves in the coveted top-of-wallet position, but may actually own full wallet share for the next generation of consumers.

The state of the market for BNPL solutions

From brands to retailers, tech providers to financial institutions, each player provides a unique service to consumers as they shop. It’s their unique services that have led these players to explore their own form of BNPL. As a solution, BNPL straddles two major touchpoints on the modern omnichannel shopping journey: 

• Buy Now – the delight of making purchases, and 
• Pay Later – the assuaging of stress by breaking payments into smaller, more manageable installments. 

In the past 12 months, nearly 78 million Americans have used a BNPL service. Unfortunately, the solutions currently in the marketplace have been better at facilitating the "buy now" part of BNPL than fulfilling the "pay later" portion. This imbalance has received the attention of the Consumer Financial Protection Bureau (CFPB), whose recent report highlights the risk that these solutions may be creating more friction and stress for consumers by enabling over-borrowing and financial management obstacles.

Meanwhile, a missing but better solution could be coming from community banks and credit unions. Financial institutions have access to valuable insight that allows them to understand the spending and saving habits of their cardholders. A BNPL solution where offers are tailored to the individualized needs of consumers is right around the corner.

Designing a balanced BNPL solution

Friction in the BNPL solutions available today has done little to dampen consumer enthusiasm and adoption. We have yet to see the potential a more comprehensive BNPL solution can unlock – that will have to come from financial institutions.

Picture this. A shopper makes a purchase and is notified that, based on their deposit account cash flow, their purchase qualifies for a BNPL plan. They agree to the loan in seconds within their mobile banking app and already the cash is deposited to their checking account. Their payment capacity is simultaneously updated to reflect this new loan such that no additional BNPL offers will put them in a financial pinch. 

Later, the consumer can review their BNPL plans to ensure payments are made on time and that the loans they have taken on align with their financial goals.

All of this happens where the infrastructure capabilities, cardholder relationships, and data to power this BNPL solution reside in one place – with primary financial institutions themselves.

The future of consumerism and banking

The future of consumerism is one where a single entity owns the primary relationship with the shopper from before a purchase is made all the way until after the payment is complete. Every entity along the purchase-to-payment process is attempting to take over as the one location where consumers deposit their money, manage their budget, and shop. Klarna has issued their own debit cards, Affirm is partnering with Amazon, and the list grows longer every day.

Financial institutions can be this one location by incorporating BNPL into their payment solutions suite. Although not yet major players in the BNPL space, financial institutions operate within the regulatory framework and payments infrastructure required to deliver a comprehensive BNPL solution to consumers. Their direct access to cardholder data enables them to determine transaction eligibility, while earnestly maintaining consumer financial wellness and protecting consumer data. This is a balanced approach to BNPL where everything happens in one place – where cardholders shop and where they bank.