Why Buy Now, Pay Later and Cryptocurrency Must Be in the Payments Playbook

By Keith Ash, SVP of SRM (Strategic Resource Management)

Consumer payment behaviors are in flux, in no small part due to a variety of emerging options. Financial institutions need to recognize these newfound preferences to avoid the risk of customer attrition. While adopting different payment platforms such as Buy Now, Pay Later (BNPL) and cryptocurrency can be daunting, it is necessary for banks and credit unions to evolve their offerings to keep up with consumer expectations. There are many key considerations to think about when mapping out strategies for these offerings.

Consider BNPL as another way to serve customers

BNPL continues to gain traction, yet many financial institutions are hesitant to embrace it. More than 80% of banking leaders say they have “little or no interest” in offering BNPL products, according to a recent IntraFi Network survey of CEOs, CFOs, and presidents from 426 banks. This is interesting because BNPL upstarts like Klarna and Affirm are achieving success with their strategies.

The Consumer Financial Protection Bureau (CFPB) has signaled increasing scrutiny of major players such as the aforementioned Affirm and Klarna as well as Afterpay and Zip, leading many mainstream lenders to hesitate. Banks and credit unions have also expressed concerns that they lack the right tools to assess risk properly.

The good news for financial institutions is that the CFPB is focusing on consumers “accumulating too much debt,” along with issues such as transparency, regulatory arbitrage, and data harvesting. While possibly creating headaches for fintechs, this type of oversight is typical for banks and credit unions. A decision by Equifax, Experian, and TransUnion to add BNPL activity to credit reports, along with new offerings from Visa and Mastercard, will give lenders a more holistic credit picture.

It’s a misperception that BNPL is a niche offering that appeals primarily to a small market segment and/or the low-credit score demographic. All customer groups can potentially find use for and show interest in Buy Now, Pay Later. Additionally, younger BNPL adopters will eventually reach life stages that call for financial products like credit lines and mortgages. If banks and credit unions ignore the BNPL demographic, they may sit on the sidelines as consumers rely on what has worked for and with them.

Even though most Americans say they would prefer to receive BNPL services through their financial institution, according to a report from PYMNTS.com, that isn’t enough. Financial institutions must offer a seamless experience like what fintechs provide.

Cryptocurrency enters the financial services mainstream

A recent Visa study found that a third of American households own cryptocurrency – typically Bitcoin – but they increasingly hold newer digital assets such as Ethereum, Solana, or Cardano. With a combined market capitalization close to $2 trillion (40% in Bitcoin alone), financial institutions need to take notice of crypto, given its potential long-term impact on their core business.

It’s important that banks and credit unions carefully evaluate their customer base and determine how big an appetite there is for crypto. Many do not realize how much money is leaving their financial institution until they look at outflows – it can be shocking. Different factors such as age groups and demographics should factor into the decision. Financial institutions should determine how offering crypto will impact their operations while weighing the potential pros and cons.

There are many decisions to be made, including choices on what services to offer and determining the appropriate third-party partners. Banks and credit unions also need to consider what use cases work best for consumers.

Beyond this, cryptocurrency strategies are comprehensive, so it’s critical that financial institutions educate themselves on guidelines and potential regulation and carefully determine their level of involvement. That could involve facilitating customer transactions, offering crypto-based rewards programs, and establishing new loan products. Often, the easy solution isn’t necessarily the right solution, so institutions should take a holistic approach to this strategy.

By offering crypto, banks and credit unions can make up for deposit outflows, gain new clients, increase engagement, avoid disintermediation, and gain new sources of interest and noninterest income. Like BNPL, if banks and credit unions fail to capitalize on the opportunity to offer cryptocurrency, consumers will find a provider that will.

The bottom line

These payment strategies should be at the top of any management team’s list. While offerings will evolve when catering to the everchanging preferences of today’s consumers, institutions can build long-lasting customer loyalty by staying on top of trending and emerging strategies, such as BNPL and cryptocurrency.