Credit unions put a twist on BNPL to lure debt-conscious borrowers

A pair of credit union service organizations are pitching installment lending as a way to manage debt following a purchase. It's a different take on buy now/pay later lending that's designed to appeal to credit unions, which have generally been more reluctant than banks and fintechs in offering BNPL loans.  

PSCU and Co-op Solutions have launched a product that lets consumers choose qualifying transactions to pay back in installments on a separate credit line than their credit card. The consumers receive the offer through their credit union's mobile app or online banking site, and do not have to complete a loan application. The installment loan is based on an earlier approval. 

Unlike a traditional BNPL loan, the consumer does not get the pitch at the point of sale, but a short time after. A consumer may put a purchase of $2,000, for example, on their credit union-issued credit card. Under the PSCU/Co-op program, that consumer would receive an offer after the payment, generally within a day, to put the purchase on an installment plan at a rate that would be less than the revolving credit card debt.

"BNPL all gets lumped together," said Nelson Fisher, new product management director for Co-op Solutions. "Most of the fintechs are offering it directly at the point of stale. What we're doing is post-purchase." 

The credit union product is similar to a feature from the fintech Curve that enables consumers to retroactively change the card used for a purchase, though the Curve product does not create a new loan.

"I think someone along the way tried to relabel these types of products because they're post-purchase," said Ariana-Michele Moore, an advisor for retail banking and payments at Datos Insights. "But these products are a nice cashflow tool for consumers who need help for whatever reason."

The benefit for the credit union is the ability to offer what amounts to a "promotional rate" for a purchase. "They're expanding their relationship with the consumer beyond the card portfolio," Fisher said, adding that the benefit for the consumer is the option to pay a lower rate for certain products. 

Co-op did not disclose how many credit unions are live with the BNPL feature at launch. Fisher said there is a "pipeline" of credit unions that are close to going live. "BNPL overall is a huge market, so there is a lot of potential," Fisher said. 

Eligibility and terms of these BNPL loans are based on a credit profile that the consumer already has with their credit union. There are also other qualifiers, including the type of purchase and limits on how many BNPL loans a consumer has at one time. Credit unions can also set minimum and maximum purchase amounts. 

PSCU and Co-op are credit union service organizations, which provide technology and other products to individual credit unions. PSCU and Co-op reached an agreement in November to combine, a merger that went into effect on January 1. PSCU has about 2,400 member institutions and Co-op has about 2,650. The organizations are in the midst of integrating their services, including a network for instant payment processing, data analytics, digital banking, risk management, customer service, a debit and ATM network, and shared branching. The BNPL product is part of a strategy to create a sticky relationship with consumers who have other financing options at the point of sale, including BNPL products from fintechs such as Klarna, Affirm and PayPal. 

The credit union BNPL product can bring value to the customer relationship, Moore said. 

"Financial institutions that outsource their digital platforms are more easily able to add this offering to their platform," Moore said. "Therefore community banks and credit unions are more easily able to respond. They also already have the data and background information on the customer." 

The global BNPL market was about $8 billion in 2023 and is expanding at a compound annual growth rate of more than 29%, according to Polaris. Consumers use BNPL for a variety of reasons. Research from Arizent, American Banker's publisher, found 47% of consumers say BNPL enables them to purchase an item they would not be able to afford otherwise. That wouldn't be a good fit for the Co-op/PSCU product, which comes after the purchase. But other reasons are better fits. Thirty-four percent of consumers say they want to try installments as a new product, while 20% are looking to avoid revolving debt, and another 20% say they want to build their credit.  

"Consumers, particularly younger consumers, love using BNPL in lieu of traditional credit," said Bryce Deeney, CEO of Equipifi, a firm that provides BNPL services for mostly smaller community banks and credit unions. It has about 30 credit union clients.   

Another differentiator between financial institutions and fintechs is the bank or credit union can embed BNPL directly on an existing debit card for more offers, Deeney said. "It's one of the first payment products that is a genuine revenue generator for financial institutions in years, perhaps since the invention of the credit and debit card," he said.