Credit Unions Well-positioned to Enter BNPL Market

March 21, 2023

Solutions Bring Convenience & Flexibility to Members

Over the past few years, the evolution in consumer spending behaviors has been a catalyst for payments innovation. From P2P to mobile wallets, and contactless to buy online/pickup in store (BOPIS), consumers have been open to trying new methods and forms of payment to attain greater convenience, less friction and more financial security and flexibility.

Buy now, pay later (BNPL) is one major trend that recently emerged and grew exponentially during the pandemic, meeting consumers’ desire for greater convenience and flexibility in how they manage their overall budgets. BNPL solutions give consumers the option of spreading payments on purchases across several months.

It’s gotten to where consumers expect their financial institutions and card issuers to offer BNPL, or they will find it elsewhere with a fintech or another bank. To remain competitive and relevant to their members’ daily financial lives, credit unions must embrace innovation in digital payments and lending, and BNPL is one important piece of that equation.

What is happening with BNPL?

BNPL enjoyed massive growth in 2022, adding a reported 28 million new users over 2021. But some foresee a bumpy road ahead for the BNPL market in 2023.

Although the industry is projected to continue its strong growth trend with a projected CAGR of 33.3% through 2026, fintech providers like Affirm, Klarna and Zip have yet to demonstrate profitability.

Moreover, the tendency of these fintechs to play fast and loose with regulations is resulting in bad publicity—as well as actual losses as customers overextend themselves on purchases during a period of economic uncertainty.

“For the customer, using fintech BNPL providers like Affirm and Klarna is introducing yet another financial institution into the mix, one where they don’t have a past relationship or experience to lean on,” said Rob Navarro, Director of Product Development, Co-op Solutions. “It becomes even harder for customers to manage their holistic financial picture, and where we might be seeing an increase in defaults or overextension. Using a BNPL solution through their trusted credit union can help alleviate that and also provide a better member experience for the user.”

The Consumer Financial Protection Bureau (CFPB) has taken notice of the rapid growth of BNPL programs, with an eye on addressing “uneven disclosures and protections,” along with “data harvesting … debt accumulation and overextension.”

“Credit unions are in an enviable position,” Navarro says, “as they are able not only to better assess the risk profiles of their members, but also help them manage their financial picture more effectively than the competition.”

According to PaymentsDive, installment payment providers like Affirm, Klarna, Afterpay and Sezzle are already tightening up their underwriting standards as consumers face inflationary pressures and losses begin to mount. But startup fintechs aren’t the only competitors in the BNPL space. More established firms like Amazon and Apple are rolling out their own versions of BNPL incorporated into their proprietary digital wallets, providing consumers with more options than ever before.

BNPL is part of a long-term shift in payments

We are witnessing a fundamental change in consumer behavior. Borrowing is moving closer to the point of sale and is becoming inextricably linked with the payment experience. This is why BNPL is resonating with so many—people want to be able to purchase the items they want, whenever and however they want.

This desire is fueling a convergence of lending and payments, with the eventual result being that the traditional personal loan may decline to the point of no longer being offered. For credit unions, this convergence is also driving a new definition of trust that is split between the traditional understanding that is exemplified by “character,” and trust as defined by “capabilities.”

Whereas credit unions have long succeeded in character-based trust aspects like providing outstanding member service and consultative advice, the winners of this new financial revolution will need to both be able to deliver the right digital capabilities to meet evolving consumer needs, while responding quickly to such changing needs through continuous innovation and agility.

Above all, credit unions need to offer innovative payment solutions that support their members’ daily interactions. If not, credit unions will lose the long-term relationships that have been built on legacy products like checking accounts, auto loans and mortgages.

BNPL-type programs are one way credit unions can drive innovation and meet members where they are today. They also serve as an evolution of the traditional personal loan, which is losing favor in today’s marketplace.

Credit unions are well-positioned to offer their own version of BNPL, but with the “credit union difference.” They know their members intimately and can offer solutions that fit their unique needs, with benefits catered to credit unions. Moreover, the installment-loan characteristics of pay over time programs make them a less risky option for lenders than open lines of credit that allow borrowers to carry balances in perpetuity. For a credit union member, participating in a well-designed BNPL program at your home credit union means you are essentially “borrowing from yourself.”

Co-op Pay-Over-Time Transactions—BNPL designed for credit unions

To meet this market need, Co-op has been busy developing Pay-Over-Time Transactions, a solution that empowers members with the control and flexibility to pay for select transactions over time, giving them peace of mind in support of their lifestyle and their financial wellness needs.

Built by Co-op exclusively for credit unions, based on input and feedback from the Co-Creation Councils, industry partners, and a Client Task Force, Pay-Over-Time Transactions offers unmatched configurability to enable credit unions to align lending risk profiles and customize the program for their specific needs. This will help to reduce the risk of delinquent payments and default, while providing members with the immediate access to create flexible payment plans for transactions that have recently posted on their credit card account.

Pay-Over-Time Transactions expands the value of payments, the most common and frequent interaction members will have with their credit union. As part of Co-op’s credit union digital ecosystem, this solution will support credit unions in their quest to acquire and retain members by offering a convenient new tool in support of their daily interactions and financial wellness needs.

Many credit unions have already signed up for Pay-Over-Time Transactions in anticipation of its release. Is your credit union ready to join them?

Co-op Pay-Over-Time Transactions is an important component of the full-service digital payments program designed for the future. For more information on this and other innovative digital payment solutions, contact your Co-op Business Executive, call 800.782.9042, or email

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