Big Banks Work to Carve Out Piece of BNPL Space

Banking giants are trying to catch up to FinTechs in offering pay later services.

A report Saturday (March 8) by the Financial Times (FT) examines this trend, using the example of JPMorgan Chase’s recent partnership with Klarna to offer installment loans to its 900,000 business clients.

Citi , meanwhile, began offering deferred payment loans through Apple Pay in January, becoming the first big bank to partner to team with the tech giant on that front.

The FT said banking giants want to expand into the growing buy now, pay later (BNPL) space amid a rollback in regulations governing deferred payments lending, and the fees that providers can charge.

In addition, the report added, big banks’ retail business are facing pressure from rising interest rates and competition from FinTechs.

“This is one of the big reasons banks have lost some market share to FinTechs, so this is partly a defensive move,” said Aaron McPherson, founder of AFM Consulting. “Other banks will follow.”

For example, the report said, profits for Citi’s U.S. personal banking business — which includes credit cards and domestic retail banking — dropped 24% last year. Part of the reason for the decline, the FT said, has been the growth of BNPL plans, which have been taking customers from banks’ credit card divisions.

PYMNTS noted as much last week in a report on credit card debt data from the Federal Reserve, writing that the scaling back on traditional avenues of credit could mean that consumers are choosing instead to take on BNPL plans, tied to debit accounts.

“The torrid pace of activity at the likes of Sezzle and Affirm — as many categories saw double-digit spending (and Sezzle notched triple-digit revenue growth ) — has far outstripped the growth in the Fed’s data,” that report said.

“PYMNTS Intelligence has estimated that credit card debt has become fairly ubiquitous: Among high-income cardholders annually earning more than $100,000, 75% have an outstanding credit balance. This share is the same for middle-income cardholders annually earning between $50,000 and $100,000.”

The report added that a similar share of lower-income consumers — people earning less than $50,000 per year — carry balances on their credit cards.

And as covered here last week, BNPL plans are popular among consumers of all income brackets . While 75% of people who live paycheck to paycheck have used these plans in the last year, the trend is not confined to low-income households.

“Even consumers earning more than $100,000 annually are turning to installment plans , signaling that these options appeal across all financial levels,” PYMNTS wrote.