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As of October 10, the bank will no longer allow Chase credit cards to pay for installment loans from non-Chase apps, including firms like Klarna, Affirm, Afterpay and dozens of others.
The bank also told its cardholders to update payment methods for any third-party BNPL provider or risk missed payments or potential late fees.
Chase allows its credit card customers to split specific payments on their card statements into three, six or 12 monthly installments from within its own app, for a fee.
BNPL loans — whether obtained through third-party apps, fintechs or challenger banks — became popular in the U.S. during the pandemic, and have since
Since
"And using credit cards to pay for BNPL has already encountered resistance in the past," Danner said, noting that Capital One, for example, does not allow its credit cards to be used for BNPL payments to third parties and American Express does not allow credit card payments in some circumstances, such as a user creating a one-time Klarna card for a BNPL loan.
"A large segment of consumers are already accustomed to not using a credit card for BNPL payments," Danner said.
Concerns over consumers using BNPL apps to quickly accumulate debt they can't pay will likely lead to new regulation. The
"You can't pay for a credit card with a credit card," said Richard Crone, a payments consultant, noting that it's extremely rare for any card issuer to allow another credit card to be used to fund monthly credit card bills.
But since BNPL for now is a different form of credit, there are ways that consumers can "game" the system by using a credit card as a form of payment for BNPL loans. BNPL providers that accept credit cards for post-purchase BNPL payments are enabling a version of a balance transfer in which consumers are in effect moving one form of recurring debt to another. Banks can benefit from this form of transfer through extra interchange revenue for the payments and increasing the outstanding balance for the bank card, Crone said, adding that it can also be dangerous.
"When someone pays a BNPL loan with a credit card, they are expanding their credit line one bill at a time," Crone said. "So theoretically that increases the credit risk for that card account."
Some consumers also prefer to use credit cards for as many payments as possible, and pay their credit card bill in full each month, Crone said, calling that group "points mongers."
"Some people will go through all kinds of contortions just to get points," Crone said, noting that
"With the growing regulatory scrutiny from the CFPB, I could see more issuers enacting [
For the third-party BNPL vendors, this might sting, but there is still a future for these apps, Danner said.
For example, a lot of consumers like to use BNPL from third parties and enjoy the zero interest financing option, while a user often has to pay a monthly fixed fee with card-linked plans, according to Danner, adding that several third-party BNPL companies are pushing customers toward using their own payment products such as the Klarna Card or Affirm Card.
"What we will see in the future is this continued coexistence of BNPL providers and card-linked BNPL plans from the issuers," Danner said
The main threat to BNPL apps could be the borrowers' inability to pay. BNPL users are more likely to use high-interest financing options like payday loans to cover their bills, according to the
"If a BNPL customer can't use another payment method other than a credit card to pay down a BNPL loan, they are a poor credit risk," said Bob Meara, principal analyst for banking at Celent. "That's the real threat to BNPL providers."