In the rapidly expanding world of buy now, pay later (BNPL) services, credit unions are finding ways to compete and thrive using Credit Union Service Organizations (CUSOs). CUSOs are formed by credit unions to collaborate and pool their resources to offer efficient and cost-effective payment solutions for members.
By partnering with a CUSO, credit unions gain access to economies of scale, advanced payment technologies, risk management expertise, regulatory compliance support, and improved member services. It also allows them to compete with larger financial institutions by providing modern payment solutions to their members.
During a recent PaymentsJournal podcast, Cody Banks, managing vice president of Payments and Fraud Strategy at PSCU, and Brian Riley, Co-head of Payments at Javelin Strategy & Research, explored the unique BNPL options that credit unions can offer and how those can enhance members’ financial wellness.
The Appeal of BNPL With Credit Union Flair
With the ubiquity of BNPL options at point-of-sale checkouts, as well as the capacity to budget for purchases retrospectively, consumers have embraced the payment model. The ease of use, checkout process, and straightforward terms—and the fact that many services offer zero-interest or low-interest rates—add to the appeal.
Although BNPL can serve as a helpful budgeting tool if used correctly, it also carries the risk that consumers could exceed their means if the method is not managed carefully. To mitigate this risk, credit unions must strike a balance between embracing BNPL as a budgeting tool and ensuring responsible lending practices.
“Packaging BNPL services in a way that promotes responsible use and aligns with the credit union’s vision is crucial,” Banks said.
By leveraging existing credit lines and working within consumers’ approved credit limits, credit unions can help members better budget their purchases. To make this possible for their members, credit unions have teamed up to offer these services with CUSOs, such as PSCU, to offer BNPL and other products.
“Something that PSCU has done nicely is integrating BNPL into a platform where the credit union can offer the similar product that’s been done by big banks for a couple years now,” Riley said.
Differences Between Credit Union BNPL and Other Players’ Offerings
One significant difference between PSCU’s Installment Payment solution and programs put forth by major players like Affirm, Klarna, and Afterpay lies in the consumer-centric approach. Whereas the fintech model often prioritizes merchant partnerships, PSCU’s post-transaction world focuses on putting the consumer at the center of the experience. This shift allows credit unions to maintain strong connections with their members and prioritize their financial well-being.
“PSCU’s solution populates three different options for installments—it could be four, six, or ten installments depending on the size of the loan,” Banks said.
Consumers can pick whichever structure works for them. And education is key in ensuring that members understand how to use BNPL as a beneficial budgeting tool without falling into the pitfalls of overextension.
“With PSCU’s BNPL offerings, you’re staying within your line of credit,” Banks said. “You’re able to better budget those purchases and focus on financial health. Other BNPL providers are not checking to see how your ability to repay is, and that is leading to overextension. Their loan approvals are done with the intention of getting the consumer through the turnstile.”
Appealing to Young Consumers
Credit unions are continually looking to reach younger consumers, and BNPL can draw them in.
“In dozens of conversations that I’ve had with our FIs, they are always shocked at how many cardholders are already using this form of payment,” Banks said.
“Appealing to younger age cohorts is really important for credit unions, and that’s a challenge that the industry has had for years,” he said. “The population is aging, and when you look at where you want to grow, it’s not necessarily with people in their 50s and 60s. You want to snag customers when they are early in their careers. Innovations like BNPL allows you to address that age cohort.”
By partnering with PSCU, credit unions can provide their members with a modern and user-friendly BNPL experience. This resonates with digital natives who value convenience and transparency in their financial transactions.
PSCU’s BNPL services allow individuals to budget their purchases effectively without being enticed by lenders that may extend credit beyond their realistic repayment capabilities. In a financial landscape where predatory lending practices are prevalent, credit unions that align themselves with responsible BNPL offerings can gain a competitive edge.
