Is Buy Now Pay Later (BNPL), also called point of sale (PoS) loans, eating into the credit card market?
A new study by TransUnion shows that BNPL is not increasing at the expense of the credit card market. Instead, the entire credit market is expanding. Rather than BNPL taking a slice of the credit pie, the pie is growing.
BNPL consumers are younger than most credit card consumers. They use BNPL to fit a specific purchase into their budgets. These consumers also carry more credit cards and other consumer loans than they do in BNPL loans. As for the delinquencies of this group, it was on par with their age and risk group. Certainly, BNPL is something credit unions should be considering.
BNPL loans are mostly used for purchases of less than $500. Merchants are charged fees ranging from 2-7%. Consumers may or may not be charged an interest rate. In the case that consumers are charged an interest rate, it is comparable to credit card rates. Some fintechs are selling their unsecured BNPL loans to secondary markets, such as banks and credit unions interested in unsecured debt.
Loans terms are for a few weeks up to 6 months. Consumers apply for BNPL loans at the point of sale and are instantly approved (or declined). The first payment may come out immediately at the time of purchase. The remaining payments occur every two weeks for the fixed loan term.
While BNPL has remained largely an online product, it is also starting to be used for in-store purchases.
Some merchants who might have been concerned that BNPL would cannibalize their credit card purchases can rest assured that it is an additional payment offering exclusive of credit cards. For customers who do not want or can't get a credit card, BNPL is a great alternative.