BNPL: Credit Cards and BNPL – Friend or Foe? [Part 3]

This past October, PerformLine hosted a panel discussion at the Money20/20 USA conference with experts from Sezzle, Alliance Data, and Snap Finance titled “Innovations and Challenges Ahead for Lenders in the BNPL Era.”

Part three of this BNPL blog series centers around buy now, pay later financing options versus credit cards-the different benefits they bring to the consumer and how they can co-exist, or even benefit from each other, in the larger payments ecosystem.

Evolutions to Enter

For companies in the payment or card space that want to enter the BNPL market, Rick Cunningham, Senior Vice President of Strategy and Business Development at Alliance Data, states:

“Entering into the BNPL space, there are really two company evolutions of BNPL; there are those companies that will fall behind, which I call ‘BNPL 1.0’, and those who will be our future leaders, that I call ‘BNPL 2.0.’

What defines 1.0 in my mind is they view the BNPL product as a stand-alone service, whereas 2.0 sees it as a feature or a capability that would extend an existing financial services partnership with a customer.

1.0 spends its energy around acquiring the customer and focusing on proof of concept to try and get into the checkout page and then scaling the product from there. 2.0 is about ongoing engagement and loyalty, taking the BNPL product to an entirely different level. It’s all about omnichannel, having easy integration with your partners. It’s about building shopping ecosystems within your apps that you can get more utility out of the BNPL customer.

And then lastly, using the BNPL product as a gateway to additional financial services so that I think that is the way the game will be played in the future for those who will be in the winning lane.”

A League of its Own

Credit card issuers have started offering services to consumers to break up larger purchase amounts into multiple payment types. This poses the question of whether or not the credit card industry is a competitor to BNPL, or if these services could open the door for future partnerships between the two. Mylee Vigness, Head of Growth and Innovation at Snap Finance, shares her thoughts:

“I believe today many of the credit card companies offer towards a prime-like consumer, and many people are using that card for rewards and points versus needing to have pay over time and that flexibility of paying over a certain number of payments.

Now that credit card companies are stepping into BNPL products, it’s bringing more awareness to the space, so there might be some new consumers there. But, I don’t know how much of a crossover there is in the credit card offering versus the BNPL. The beauty of BNPL is that it’s simple, it’s easy, it takes the mental accounting out of it. You know what you are agreeing to pay.

In my head, as it stands today, credit cards and BNPL are serving different consumers. So yes, there will be partnerships and competition between the two, but the good thing is that at the end of the day, there will be more innovation. So you’ll see the credit card companies entering the space, you’ll see other players. In the end, I believe the consumer wins. It’s a win-win for everybody with all the evolution in this space.”

Chris Bixby, the Vice President of Growth at Sezzle, adds in his views:

“We don’t see credit cards as competitive. That’s a big part of the relationship and partnership with Alliance Data; we see it as a continuation. When we see credit cards kind of offering ‘installments’, it’s a very different endpoint that they are solving for. They are solving for someone who already has a credit card and doesn’t want to be responsible for the complete payment all at the end of the month and who prefers it to be spread out over a period of 3, 6, or 12 months.

What BNPL is solving for is the consumer who has never had the chance to get a credit card or who will get rejected if applied for by these credit card companies. LendingTree came out this year with findings that retail card applications will be the lowest this year than ever. There has been a group of consumers that have been left behind coming out of the 2008 financial recession, and that has also been left behind by traditional forms of credit. They are not even looking for credit cards at this point, or they have thin files, are subprime, young, immigrant, new to the country, or don’t have a credit profile.

This is where BNPL plays a role. Look at it as a very unique segment-it solves a problem (a gap in the credit space) and then based on that need, we can move through the credit spectrum into a credit feeder program. That is a big part of that TransUnion partnership for us, and it grows our ability to help our consumers report and build their own credit. At some point, they’re going to want to come to a retail card program such as a Visa or Mastercard.”

Check to see if you are compliant

As the regulations governing industry lending can be complex, broad, and often time ambiguous. To ensure that your brand and your merchant partners are compliant, download our compliance checklist of the top items that Buy Now, Pay Later lenders should keep in mind when crafting their compliance programs.