Why Community Lenders Should Care About ‘Buy Now Pay Later’

The term Buy Now, Pay Later (BNPL) is getting harder to ignore. The number of consumers using BNPL grows each year exponentially. There are already millions of active users taking advantage of these programs. That’s billions of dollars being put into these payment options, yet plenty of community lenders and banks continue to underestimate the impact of these offerings. If banks and lenders neglect to react, they can potentially lose out on new customers whose interest lies with the flexible credit solutions BNPL can provide.

Many people desire the stability and security older trusted institutions have established, but very few of them offer convenient and accessible credit options, causing them to grow stale in the eyes of consumers. With such a powerhouse opportunity available, community lenders have no reason not to consider implementing a BNPL solution. Read on to find out more about what is Buy Now Pay Later, where we discuss why financial institutions should be making the right moves to adapt and bring on new banking solutions before getting left behind.

What is Buy Now Pay Later?

Not quite a normal point of sale payment and not quite a normal credit offering, Buy Now Pay Later lives somewhere in between, providing a consumer-friendly alternative to traditional credit programs. Younger generations tend to use their debit cards over credit cards for most purchases, often because they don’t properly understand how credit works or distrust financial institutions in general. Whatever the reason, BNPL later creates an interesting opportunity to slowly build credit while avoiding high interest rates that result from multiple credit card payments.

How BNPL Works

Experts say Buy Now Pay Later, in a sense, turns debit card transactions into credit transactions. BNPL takes large purchases and makes them easier to manage installment payments over time without any interest added. Unlike traditional forms of credit, consumers can apply for BNPL services over an app you can download on the spot, and approval is often instantaneous. Depending on the company, a soft credit check may run, or sometimes penalty fees for missed payments are harsher than others. Customers using BNPL should be advised to take stock of their financial situation and budget accordingly. The entire process will vary depending on the BNPL company but generally follow a similar structure as detailed below:

1.      The customer pays a percentage of the total price as a down payment at the time of purchase.

2.      The rest of the payment is spread out in a few installments over the next several weeks or months. For instance, you may often pay                          25%at a time per payment, with each payment two weeks apart.

3.      The merchant covers the interest costs in turn for more sales. The customer only pays extra fees if they miss a payment.

Why Financial Institutions Should Be Taking BNPL Seriously

It can be argued that the BNPL world has been more disruptive in only ten years than traditional financial institutions that have been around for hundreds of years. Even so, younger generations still support established financial institutions their parents and grandparents used. However, banks and lenders are often associated with strict regulations and rigid structures. To hold on to these younger banking customers, seeking new methods and solutions will keep consumers intrigued.

BNPL serves as a great chance for those less established financially to get to a point where they are more comfortable and able to take advantage of different forms of credit. Of course, it’s not just younger, or new customers who are using these new Buy Now Pay Later applications. In fact, older generations still make up a large percentage of BNPL users. Knowing this, financial institutions should recognize the need to offer BNPL for both new and loyal customers.

Next Steps

So how do financial institutions stay ahead? It may not be as difficult of an adjustment as you think. In fact, it may not end up costing a thing. Find a turn-key digital installment loan app solution, many of which are already readily available, to integrate into existing structures. Find the right financial consultant partner who can help you compete with the growing financial technology sector. Installment loans using BNPL programs is the fastest growing area in the industry, and community financial institutions will miss out on profits and new customer bases without it. Many experts only foresee these programs growing even more in the future, tying into customers’ plans to establish credit.

Launch a High-Growth Consumer Loan Portfolio with Red Rock Financial

At Red Rock Financial, we represent a system that offers an easy way for community financial institutions to provide instant installment loans and compete with the FinTechs! Consumers fill out a simple application (includes a soft credit pull) on their smartphone and are instantly approved for a loan of $250 – $9,999 to be used for new purchases (online and/or point of sale) or to pay off or pay down recent debit/credit card purchases or replenish a debit card account. Your financial institution determines your risk tolerance parameters and profitability objectives – you are in total control.

Do you think our programs might work for your institution? Let’s start a conversation. You can get in touch with our team at (847) 867-3311 or via our online contact form.