Everything you don’t know about BNPL and what you must know now
File this under: What you don’t know that you don’t know can hurt you.
That’s my takeaway from a long conversation I recently had with Bryce Deeney, a co-founder and CEO of equipifi.
Deeney and I had talked about BNPL two years ago and I thought I knew all I needed to know about it – it’s interest free, short term, small dollar loans much loved by Gen Z who use it to pay for stuff like a Taylor Swift MP3. Default rates were unknown but thought to be double digit. And there’s no way to track how many active BNPL loans a particular consumer has so lending money is definitely a crap shoot. No wonder credit unions, most of them, are sitting on the sidelines.
Color me out of touch. What I knew had been true a couple years ago but no longer, Deeney patiently explained to me. Pretty much everything I “knew” was flat out wrong.
The more I’ve thought about what I learned in my talk with Deeney, the more I realized I needed to rethink my beliefs about many other hot credit union topics such as AI, instant payments, crypto currency and more. Down below these issues are briefly addressed.
First however there’s what we – at least I – had wrong about BNPL and just as I needed to know the current BNPL reality so do you because it is beginning to chew up big swallows of traditional financial institutions’ credit card business (along with the interchange fee income).
Understand this: two years ago the big BNPL players such as Affirm, Afterpay and Klarna were in aggressive startup mode and that meant aggressive customer acquisition.
Today if a credit union exec were to call the big BNPL players and suggest working together, that call would probably never be returned. That’s because they are actively seeking to offer banking services such as debit cards to their customers. They don’t want to work with banks and credit unions, they just want to take their customers and members, said Deeney.
The good news: niche players are creating white label tools that will let credit unions offer BNPL to their members. Such offers can be generated right inside the mobile banking app in many cases.
More good news, per Deeney, is that BNPL default rates – which has been thought to be double digit fiascos – are now much lower as the BNPL players have tightened their criteria for extending an offer.
Credit unions, incidentally, have a big edge when it comes to making smart offers because they are limited to members and credit unions have real insight into a member’s spending habits, bill paying reliability, and even how much debt they are already carrying. These advantages could help credit unions achieve very low default rates, said Deeney.
Another change in BNPL is that while it was true – and CFPB even grumbled about it a few years ago – that the credit reporting agencies did not track BNPL contracts and therefore a consumer could already have a dozen outstanding commitments when applying for a 13th but the BNPL player wouldn’t have had visibility in that consumer’s indebtedness, matters are changing, said Deeney. The big credit monitoring agencies now are logging reports from some of the bigger BNPL issuers and that transparency trend will probably continue as more consumers avail themselves of this option.
Speaking of which, although I had thought the primary users of BNPL were Gen Z and a sprinkle of Millennials, Deeney assured me that Boomers too are increasingly using BNPL. The stats indicate that Boomers still prefer credit cards but they are indeed using BNPL.
As for those small dollar BNPL transactions – under $100 apiece – that’s dated info too. $689 is a commonly heard number nowadays and that’s a different transaction than a Gen Zer buying a couple Barbie tix with BNPL.
What did I have right about BNPL? Well, let’s not focus on that. Focus instead on this: whatever we believe about credit unions and new tools needs to be reassessed for current validity on an ongoing basis. Realities just are changing too fast to slip into a comfortable mindset and assume it’s still valid.
And that’s not just about BNPL. There are more – vivid – cases in point where old ideas are just wrong.
AI: A year ago I would have told you AI – artificial intelligence – was yet another shiny object that could be ignored. No more. ChatGPT, Google’s Bard, and Anthropic’s Claude are ever more useful tools. Are they ready for prime time deployment in credit unions? I don’t believe so, not on a broad basis. But I know that every credit union should be experimenting with AI because this train is leaving the station and you won’t want to miss it.
Instant payments: You may have heard about instant payments and money movement a dozen years ago – I know I heard about it in NACHA circles – and I’d long ago shrugged it off as not happening in the US where batch processing seemed entrenched. Guess what, instant payments are becoming a definite reality in the US now, said payments guru Richard Crone. FedNow is a reality that shouldn’t be ignored. Want to take an instant payments baby step? Offer Zelle, said Crone, who said it’s an easy intro to the world of instant money movement.
Cryptocurrency: Surely it’s time for credit unions to firmly shut the door on crypto – isn’t it scam city? I thought that but recent conversations with credit union people have opened my eyes and mind to thinking limited crypto deployments make sense in any campaign to keep more members’ money inside the institution’s walls. That’s what I heard in a talk with Becky Reed, former CEO of Lone Star Credit Union, and also with Eric Hilaire of WeStreet Credit Union. There is solid thinking to support sticking a few toes in crypto waters.
That list is just scratching the surface. Nowadays, just about every belief we hold needs to be challenged and reviewed at least annually. The alternative is mental obsolescence. Ouch.
