A wide field of Buy Now, Pay Later players can confuse even the best credit manager as they try to decide how to take a position in the hot area of short-term installment lending. There is plenty of buzz about fintechs in the space, but the unstable market makes it hard to make the right decision. Is it a merchant play or a lender play?
While merchants still try to figure out why BNPL discounting costs make sense, frequently landing at 6%, about three times higher than U.S. credit card interchange rates (and about 6X of debit interchange), credit card issuers have an opportunity to create a beachhead for installment payments.
But the classic build/buy strategy comes back to haunt the credit manager who wants to navigate finding a good option and tarnishing their career by aligning with the wrong vendor.
Visa has an interesting option to help credit card issuers develop options through its Visa Ready program. Visa Ready is a portal at the payment network with a curated list of vendors. Mercator often uses the site as a reference point during vendor reviews or when we search for exciting developments in payment card technology.
Visa recently added Buy Now, Pay Later vendors to its option list, covering seventeen technology segments, including BIN Sponsors, Internet of Things, and Tokenization.
You will not find every BNPL vendor on Visa’s list, but you will find options for those that are Visa Ready Certified and Visa Fast Track Partners. Top-of-mind vendors in the BNPL space include ACI Worldwide, Cross River, FIS, i2c, Marqeta, Moneris, Provenir, Sutton Bank, TSYS, and Visa.
Will BNPL thrive in years to come? We think so. It will take a different form, with traditional lenders at the helm, who will link to strong BNPL providers rather than standalone fintechs who struggle with pricing and credit quality.
There is, however, a bigger picture for financial institutions. The consumer trend is not just about BNPL lending; installment lending is an option for debt consolidation in a market where credit card interest rates are certain to increase.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group