Traditional Banks Win Big as Card-Based Buy Now, Pay Later Goes Mainstream

The traditional banking industry is rapidly claiming its share of the lucrative buy now, pay later (BNPL) market. While third-party fintech companies once dominated the installment payment space, a major shift is underway. Driven by rising cost-of-living challenges, consumer trust in legacy financial institutions, and the desire to retain credit card rewards, card-based BNPL solutions are quickly becoming the preferred choice for shoppers.

This evolution is moving beyond credit cards. Debit card-linked installment options are gaining traction, accelerated by initiatives like “Affirm Edge,” where the fintech giant partners directly with traditional banks and credit unions. Additionally, artificial intelligence is starting to play a pivotal role, with AI-driven recommendations guiding consumers toward the best repayment choices.

Strong Momentum for Bank-Led Installments

Major financial institutions are already seeing massive returns on their pay-over-time features. In its latest annual report, JPMorgan Chase revealed stellar adoption rates, noting that 6 million customers have utilized its credit and debit payment plans, accounting for $10.8 billion in transactional volume.

According to research from PYMNTS Intelligence, consumer preference is shifting heavily toward established financial institutions. A survey of more than 2,000 consumers revealed that 36% had utilized card-linked installment plans recently, compared to just 12% who chose independent fintech apps.

Key Market Developments:

• Major Bank Launches: Bank of America recently introduced its “Custom Plan” feature, enabling credit cardholders to easily split qualifying transactions into structured monthly payments.
• Higher Consumer Satisfaction: A JD Power U.S. Buy Now Pay Later Satisfaction study identified BNPL as the fastest-growing payment method in the country. Crucially, consumer satisfaction was notably higher with bank-branded installment options than with fintech startups, though fintechs still maintain a lead in overall transaction volume.
• Fintechs Seeking Banking Charters: To protect their market share, top fintech players are trying to bridge the gap. Affirm has applied for an industrial bank charter in Nevada, while Klarna has filed for a similar charter in Utah, seeking the security of federal deposit insurance.

Why Consumers are Flocking to Card-Linked BNPL

According to key industry reports, approximately half of all major credit card issuers now offer some form of integrated installment plan. This shift is highly appealing to consumers who want to manage their cash flow without sacrificing the benefits of traditional credit cards.

Industry analysts highlight several key reasons why bank-issued BNPL plans have a competitive advantage:

• Retention of Rewards: When consumers finance major purchases through their existing credit cards, they generally retain their accumulated cash back, points, or miles. Independent fintech options do not offer these loyalty perks.
• Robust Consumer Protection: Traditional credit cards offer purchase security, fraud protection, and extended warranties. Buyers lose these critical safeguards when opting for a third-party BNPL application at checkout.
• No Extra Credit Checks: Point-of-sale fintech loans require real-time approval for every individual purchase. Conversely, cardholders utilize their pre-approved, existing credit lines, which are often significantly higher than what a fintech app would offer.
• Post-Purchase Flexibility: Unlike retail checkout options, bank solutions allow consumers to convert a purchase into an installment plan days or weeks after the transaction has cleared.

The Future: AI and Collaborative Partnerships

As the payments landscape becomes increasingly crowded, managing multiple installment debts has become a headache for consumers. This friction is paving the way for artificial intelligence to manage personal finances.

Research indicates that 60% of consumers would trust AI to analyze and select the most favorable payment plan for their purchases. The numbers soar even higher among younger demographics, with 80% of Gen Z and 78% of Millennials open to AI-guided financial decisions. These digital-native cohorts are using AI tools to track multi-provider debt, compare interest fees, and monitor the credit score impacts of their repayment strategies.

At the same time, the boundaries between fintech and traditional banking are blurring. Affirm’s strategic shift toward bank partnerships through “Affirm Edge” aims to capture a massive market of “debit-first” consumers. By embedding Affirm’s underwriting capabilities inside mobile banking apps, banks can offer seamless pay-later options without taking on the direct credit risk.

For regional institutions like Old National Bank, offering integrated debit card installment plans helps keep their cards “top of wallet.” It elevates the debit card from a simple tool for everyday small transactions into a highly strategic payment option for larger, pre-planned purchases, keeping the entire consumer relationship firmly within the bank’s ecosystem.

Source: thefinancialbrand.com