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Buy Now, Pay Later (BNPL) represents more than a small-dollar lending product; it’s a powerful strategy for financial institutions to defend their deposit relationships and secure long-term growth. While individual BNPL loans are small, their strategic impact on revenue and customer loyalty is significant and often underestimated.
The power of BNPL lies in its relevance to everyday spending. It meets consumers at the decision point for everyday purchases, with loan sizes typically ranging from $135 to over $10,000. This captures high-frequency, high-conversion moments throughout a consumer’s financial life, creating a prime opportunity for growth-oriented institutions. As a mainstream payment option, BNPL is now available almost everywhere.
However, lending teams have historically viewed BNPL as a blind spot due to the high operational costs of manual servicing. The good news is that automated, embedded installment lending is now accessible. Hundreds of institutions have launched profitable BNPL programs, serving a critical strategic purpose: preventing deposit attrition.
Key Insights: Why BNPL Is a Defensive Necessity
- Fintechs are using BNPL as a gateway. Everyday payment features like BNPL are the entry point for fintechs to capture primary banking relationships, and J.D. Power research shows this is causing measurable attrition among traditional banks. Currently, only 3 of the top 10 U.S. banks by deposits offer a competing installment option.
- Banks win on trust, but lag on usage. Financial institutions lead in customer satisfaction, scoring 704 out of 1,000 versus fintechs’ 603 in J.D. Power’s latest study. Yet, fintechs command 97% of BNPL activity—a gap reflecting availability, not customer preference.
- The payoff is the protected relationship. BNPL’s true value isn’t the loan itself, but the customer relationship it defends and deepens, determining where consumers—and the next generation—choose to bank.
BNPL Is Critical to Halting Deposit Disruption
As industry experts note, fintechs identified payments as a backdoor to the deposit relationship, building integrated apps around debit cards, BNPL, and digital wallets. This strategy has created “deposit disruptions,” directly causing customer losses for incumbents. Fintechs like Klarna and Affirm used checkout BNPL to gain tens of millions of users, then leveraged that foothold to issue debit cards and pursue bank charters.
An institutional BNPL offering is a crucial defensive step. By providing the same entry point that fintechs use, banks can keep the entire customer relationship intact. As highlighted by The Financial Brand, banks failing to match these full-spectrum payment offerings risk accelerating customer losses. The decisive move is to integrate competitive payment features, including BNPL, to defend the deposit base.
Purchasing Power Retains Customers, Not Just Loans
For most institutions, BNPL’s advantage is deepening existing relationships by consolidating the financial life consumers want in fewer places. Fintechs like Klarna have seen users evolve from short-term BNPL to larger purchases, building trust over a lifetime of spending. By pairing BNPL with debit, fintechs secure a second point of contact for everyday spending.
Institutions offering BNPL are responding to clear consumer demand. This presence compounds with every purchase decision, reinforcing that the account holder turns to their primary institution for purchasing power.
Banks Lead in Quality but Lag in Availability
Banks are building better BNPL products, as shown by their significant lead in satisfaction scores. The challenge is availability, not preference. Demand is surging, with 37% of consumers making a BNPL purchase in the last 90 days—a five-point jump year-over-year. Nearly half decide to use a payment plan before reaching checkout.
This combination of rising demand and a satisfaction advantage is a major opportunity. The fix is straightforward: ensure trust is available at the moment consumers decide how to pay. Modern technology makes launching BNPL programs faster and more cost-effective than ever.
However, many executives hold misconceptions about BNPL users. Data shows they increasingly mirror the average American consumer—often with credit cards—who choose BNPL for predictable costs on specific purchases. This behavior is especially prevalent atop debit card usage, still the nation’s most common payment method.
Relationships Go to Those Who Show Up First
Fintechs gained their position through timing and embedded features, not lending expertise. They occupied the checkout moment, then expanded toward deposits. Financial institutions still hold the core relationship today. To keep it, they must occupy the payment decision moment, preventing fintechs from filling the void.
In the end, BNPL determines who retains customer relationships today and influences where future generations decide to bank. The institutions that act decisively will secure both revenue and loyalty.
Source: TheFinancialBrand.com