When Visa Installments was launched in Australia last week with ANZ bank and Quest Payment Systems, it was seen as a sign that large global players have acknowledged the growth opportunities in this category and don’t intend to cede the field to the so-called pureplay buy now, pay later (BNPL) FinTechs that ignited the blossoming love affair with installments.
In a recent conversation with PYMNTS’ CEO Karen Webster, Mary Kay Bowman, head of global seller product and solutions at Visa, said demand generated by the excitement of pureplay BNPL firms is moving beyond FinTech players and into the far larger pool of revolving credit users. It’s a trend she says that will begin to impact how BNPL is accessed and used by different consumers and the composition of the sector itself over time.
“One of the things that comes to light for me as somebody who’s built products over multiple technology cycles is that everybody now looks at the customer experience and works backwards,” Bowman said. Not only is there “a place for install alongside revolve,” but more traditional banks and larger payments players have come to recognize this, just as consumers have.
“Some customers who have an unused credit line available from a provider that they know and trust don’t necessarily want to get a new [BNPL] account,” Bowman said. “So adding the installment features to their existing credit line is a great solution for them.”
At the same time, she said, some people may not be as aware of some of the newer FinTech players and might be looking specifically to their existing financial relationships “for that trusted [BNPL] experience.”
Bowman added, “A lot of it also has to do with where [BNPL is] available at sellers. [Consumers] might see [BNPL] at a Peloton or for a particular purchase from a particular merchant, but they’re not seeing it at every merchant, and so the more we can make it part of their existing capabilities with their existing cards, I think there’s that driver as well. Some of it is awareness and some of it is trust, kind of like everything else in payments.”
BNPL FinTechs like Afterpay, Klarna, Sezzle and others continue capturing consumer dollars and imaginations, and with Visa Installments’ launch coming just weeks after Mastercard introduced a new BNPL offering for the 78 million merchants on its network, proliferating choice is altering the terrain for consumers, banks and the growing number of BNPL players.
BNPL Embracing New Use Cases Including High-Ticket
Bowman noted that while growing demand for BNPL is undeniable, “It’s still quite new in a lot of places, and it’s still quite small in a lot of places. Although it’s growing fast and although it’s meaningful … some analysts say [BNPL] is between a $100 million or $150 million versus $9 trillion in just Visa [card] volumes. It’s helpful to put it in perspective.”
With the new Visa and Mastercard programs now set to grow BNPL’s footprint to millions more merchants potentially, how people use alternative credit versus cards and revolving credit lines is a budget management decision more consumers will now face.
Asked about this increasing credit choice dilemma, Bowman replied, “There are people who are looking [to expand] their financial relationships with more players, and I think there are some who don’t want to expand, and they want to keep track of fewer accounts.”
“When we look at the customer value for buy now pay later or an installment experience on top of their existing credit line, [consumers are] saying, ‘well, maybe I would buy this … luxury purchase, but I still want to be responsible, so I would only do it if I knew I would pay it off and it wouldn’t end up in my revolving credit.’ It gives them that additional capability of control without having to have yet another credit line or another account to manage.”
Recent PYMNTS research finds that consumers are interested in making high-ticket and luxury purchases using BNPL. The Next BNPL Horizon Report: Expanding Access To High-Value Services, an Amazon Web Services (AWS) collaboration, found that 43% of U.S. adults (about 111 million consumers) are considering BNPL to fund things as varied as remodeling and medical treatments.
Bowman sees that within a larger trend of deciding where — and on what — to use credit.
“Customers are very good at kind of segregating what they’re going to use something for,” she said, listing the ways consumers use debit or credit for specific types of purchases, consolidate charges to primary credit cards, and use prepaid cards to manage payments conveniently.
“I think that it’s early enough in adoption in some of these newer markets … that we won’t know exactly why customers are doing it, but I do believe that we will start seeing those types of patterns that we see with debit or prepaid or some of the other credit products,” she said, adding, “They will use them distinctly, some for … high-ticket purchases, some [for] necessities, some that are just kind of luxuries, and … others will build their credit with it.”
Bowman said, “One of the things that we’re seeing, because we have deep partnerships with the FinTech installments and BNPL players, is … a lot of payback on debit cards, so [consumers are] looking at these [BNPL payments] as a bill.” She added that between 2017 and 2019 that debit paybacks grew 4.5 times higher than the growth of payments overall.
‘Only Scratching Surface’ of BNPL
As BNPL and installments grow and change, Bowman sees financial institutions, consumers and payments providers in a mass “test and learn” phase that will bring forth yet more experiences.
“That’s what we’re seeing, is people both experimenting and then prioritizing,” Bowman told Webster. “And so for certain banks they’re prioritizing … making this a bank-centric customer experience using the technologies and the partnerships that they already have, but also focusing on the existing customers that they have. I think we’re going to see a lot more of that over the next few years as … this installments customer experience grows into this new technology cycle.”
With Webster noting that BNPL is still a form of revolving credit, Bowman said it’s the perception of spend control and experience that continue setting BNPL apart.
“It might not be meaningful to the credit portfolio manager at a bank or at a FinTech who is managing the credit, who’s managing it behind the scenes,” Bowman said, “but from a customer perspective at the time of purchase, when I use install and I make that decision at the point of purchase, I am going to know … there’s going to be a set payment, and there’s going to be a set number of payments. So, I have a perceived and real sense of control that when you use revolve you don’t have. That’s what the customers are responding to at the point of sale.”
On the merchant side, Bowman said, “this is a way … to acquire customers, retain customers for repeat purchases … or [a way to] renew customers and bring them back in. So, I think [merchants] see the merchandising capabilities of this as it relates to the customer experience because they’re always looking to delight their customer, acquire new customers and retain existing customers.”
As to how mounting BNPL growth will impact monetization models, there’s still a lot to learn.
Bowman told Webster, “I think one of the things that we will see happen over time as this whole set of products matures is who is paying for the financing of it? Is it at zero percent, or does the customer pay something? Does the seller pay something or maybe does some other third party pay for something as an incentive? That’s the other thing that I think is very powerful. We’re only scratching the surface of what the potential is of buy now, pay later and installments at the point of sale as a merchandising capability.”