Klarna, Affirm, and Afterpay - these are the well-known representatives of the first wave of buy now, pay later services. But the B2C fintechs that challenged traditional financial institutions with quick digital loans, are no longer at the forefront of the trend. Issuer-led BNPL is now on the rise. After all, credit card companies are not new players in the delayed payments business. In fact they are true "evergreens" and were the first ones to make delayed payments possible.
Credit card giants have once again recognized their chance and are confidently entering the market. They can’t leave the entire market to young B2C fintechs, considering the BNPL sector is expected to grow to $995 billion by 2026. For end consumers, this development means even more flexibility. Until recently, users were completing digital installment payments when shopping in an online store or physical stores at the point of sale. Now, issuer-led BNPL enables consumers to complete installment payments afterwards - simply via the app of the issuing credit card company. This confirms that issuer-led BNPL contributes significantly to the user experience and thus to customer loyalty. But what does issuer-led BNPL actually mean?
Issuer-led BNPL vs. Merchant-led BNPL
For credit card providers, issuer-led BNPL is a response to the likes of Klarna. B2C fintechs have argued that direct integration into online and physical shops would make them an alternative to credit cards. This was particularly well received by Generation Y & Z, since the use of BNPL solutions is usually less complicated for them. Now several credit card companies want a piece of the cake. An example of credit card-based BNPL is “Plan It” by American Express offered in the United States. AMEX customers can conveniently split purchases of over 100 $ paid for by credit card into installments directly in their American Express app. They can split the purchase amount into smaller amounts of three, six, or nine months and thus agree on installment payment after the purchase.
Users can agree on installment payments for up to ten purchases at the same time. For American Express, "Plan it" is a way to collect fees for the service itself and another way to retain customers and not lag behind competitors in the BNPL market. That's why customers can also participate in rewards programs when they use "Plan it".
Start installment payments after purchase
In response to the booming fintech trend, Mastercard has launched its 2021 “Installments” program with its own BNPL offering in the US, Australia, and the UK. The installment payments are accepted throughout the Mastercard network and can be used online as well as in-store at the point of sale. Again, the argument is made that BNPL leads to higher shopping carts. However, Mastercard wants to charge retailers 3 percent of the purchase price if consumers opt for the new program which has caused a stir among shop operators. However, they still have the option of opting out of the program.
Visa has also opened the hunt for BNPL providers like Klarna or Affirm and launched its "Installments" program in several markets (USA, Australia, Canada, UAE). The credit card giant works with merchants as well as financial institutions, and enables so-called “post-purchase installments” - consumers can convert a recent card transaction into installments and pay off the amount in four installments over four months.
These examples show that issuer-led BNPL has successfully been launched in the Anglo-American region. Now it's time for the trend to arrive in the DACH region.