A PYMNTS Intelligence report, “Build Now, Not Later: How Banks Can Seize the BNPL Opportunity,” created in collaboration with Galileo, examines crucial insights about the current BNPL trend and its implications for traditional financial institutions (FIs). Here are three takeaways from the report that illustrate the importance of BNPL services in shaping the future of banking.

The Rising Demand for BNPL Services Among Consumers

The popularity of BNPL services has seen remarkable growth, driven primarily by younger, digitally savvy consumers. This trend is particularly evident during peak shopping seasons; for instance, consumer spending on BNPL transactions reached $17 billion between November and December, marking a 14% increase from the previous year. This surge indicates a clear shift in consumer preference toward flexible payment options that allow for the deferral of costs without incurring significant interest.

The appeal of BNPL services lies in their seamless, user-friendly nature. Customers appreciate the convenience of managing payments in small, manageable installments, which helps alleviate financial strain during uncertain economic times. Despite this popularity, there are areas for improvement; a portion of BNPL users desire lower fees and enhanced application processes. This presents an opportunity for both FinTechs and traditional banks to refine their offerings and capture a larger market share.

Banks’ Increasing Interest and Investment in BNPL Solutions

In response to the growing consumer demand for BNPL options, many banks and financial institutions are beginning to roll out their own BNPL services. This shift is a strategic move to attract and retain customers who might otherwise turn to FinTech competitors. For example, U.S. Bank has launched its own BNPL service, Avvance, which offers financing and repayment plans at the point of sale and is designed to integrate with existing merchant relationships.

Additionally, partnerships between banks and third-party providers, such as the collaboration between Marqeta and Credi2, are helping financial institutions to expedite their entry into the BNPL market. These alliances allow banks to offer BNPL solutions quickly and efficiently, leveraging the technological capabilities of their partners while tapping into the existing customer base of the banks.

Traditional Banks’ Advantages and Future Potential in BNPL

Although FinTech companies initially pioneered the BNPL space, traditional banks are rapidly catching up. Banks possess inherent advantages that could position them favorably in the BNPL market. A key factor is consumer trust; surveys indicate that a notable portion of Generation Z consumers and other demographic groups have greater confidence in banks compared to FinTechs, particularly concerning fraud prevention and overall financial security.

Banks possess established infrastructures, extensive customer data and advanced risk assessment capabilities. These resources enable them to develop customized BNPL solutions with strong fraud protection and credit management features. By utilizing their experience and existing customer relationships, banks are positioned to offer BNPL services that are secure and seamlessly integrated into their overall financial offerings.

The rise of BNPL services marks a transition toward flexible financial solutions. Banks are entering this market, using their infrastructure and customer base to provide secure, integrated BNPL options. This move offers banks a chance to capture market share and influence the future of financial services by meeting demands for convenience and affordability.

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By the Numbers

The PYMNTS Intelligence report “Redefining Retail: Consumer Finance Trends Driving the Evolution of Pay Later Plans” drew from a survey of more than 2,600 United States consumers to understand how and why shoppers were using various types of installment plans.

When it comes to BNPL, the study noted higher adoption among those facing economic challenges than those with a financial safety net. Specifically, 26% of those who live paycheck to paycheck with difficulties paying their bills said they were very or extremely likely to use BNPL in the next 12 months. A slightly lower 21% of those who live paycheck to paycheck without difficulties paying their bills said the same.

For consumers not counting on their next paycheck to get by, that share dropped. Only 10% of those who do not live paycheck to paycheck reported that they expected to use BNPL in the next year.

The Data in Context

BNPL payments are becoming more common, but the regulatory environment is in flux. Last month, Adobe Commerce announced the ability for merchants to offer their customers Klarna’s BNPL services. Since the start of the year, Klarna has also rolled out partnerships with Uber, Expedia and travel retail brand Away, among others.

Meanwhile, the Consumer Financial Protection Bureau (CFPB) ended its commentary period for its proposed BNPL regulations, leaving questions about what companies will have to do to comply with new obligations to consumers and when.

As BNPL services gain traction among consumers, particularly those facing financial hardships, the evolving regulatory landscape will play a role in shaping the future of these payment options.

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Time has expired for companies looking to comment on the Consumer Financial Protection Board’s (CFPB) interpretive ruling on BNPL plans. With the CFPB holding options open to revise the regulations after the comment period is over Thursday (Aug. 1), two companies threw what could be termed a Hail Mary pass in the closing minutes.

Klarna — which was joined on the last day of comments by AARP — expressed its concerns in a strongly worded letter to the CFPB. While the filing indicates that Klarna supports regulation of the BNPL industry, it argues that the CFPB’s approach is misguided. The company contends that BNPL products are fundamentally different from credit cards and should not be regulated under the same framework. Klarna emphasizes that BNPL offers a more transparent, fair and sustainable alternative to traditional credit, with lower default rates and fewer consumer complaints.

“Through this Interpretive Rule, the CFPB is attempting to apply to the BNPL industry rules created for the credit card industry over 50 years ago, before the advent of cell phones, personal computers, and digital BNPL accounts,” the Klarna filing reads. “Not only were these regulations created without modern credit products like BNPL in mind, but with American credit card debt topping $1 trillion dollars it begs the question: are these regulations even working for the products they were initially designed for?”

Klarna joined fellow BNPL company Affirm, which on Friday submitted its commentary on the CFPB’s rule. The CFPB’s proposed interpretive rule under the Truth in Lending Act (TILA) and Regulation Z seeks to extend consumer protection measures akin to those applied to traditional credit cards.

In its letter, Klarna raises several issues with the interpretive rule, including clarifying key terms and provisions. Klarna argues that the rule’s timeline for compliance (60 days from publication on May 31) is inadequate, given the extent of clarification needed. The company also points out potential inconsistencies in how the rule would be applied across different BNPL providers, particularly regarding billing cycles and dispute resolution timelines.

“We believe consumers would be better served by initiating a comprehensive, formal rulemaking process to develop a tailored regulatory framework for BNPL that both protects consumers and fosters innovation,” the filing states.

“This approach would enable consumer advocates, industry stakeholders, and regulators to collaborate effectively, ensuring that the primary focus remains on achieving positive consumer outcomes. We urge the CFPB to reconsider its approach, focusing on positive consumer outcomes rather than applying outdated regulations to a new industry.”

Klarna proposes that the CFPB either rescind the interpretive rule and commence a formal rulemaking process specifically for BNPL products or extend the effective date and provide written clarification on raised questions. The company advocates for a bespoke regulatory framework that recognizes the distinct nature and lower risk profile of BNPL products compared to traditional credit cards. Klarna argues that such an approach would ensure robust consumer protection while fostering innovation and competition in the financial services industry.

On the opposite side of the aisle, the AARP, which advocates for Americans over 50, came out in favor of the interpretive rule in its letter to the CFPB. The organization notes that while BNPL use among older Americans is lower than younger borrowers, it is rapidly increasing. AARP argues that applying Regulation Z to BNPL will protect older consumers from fraud and provide much-needed protections, including transparency in pricing, sufficient disclosures, clarity on dispute resolution and refunds, and determination of a consumer’s ability to repay before extending credit.

AARP emphasizes several key areas for consumer protection in BNPL loans. These include ensuring borrowers can repay, providing a seamless process for disputing transactions and obtaining refunds, and offering clear, upfront information on terms, pricing and potential fees associated with BNPL loans. The organization urges the CFPB to establish clear guidelines for disclosures in plain language and in the consumer’s preferred language.

Additionally, AARP encourages the CFPB to provide consumers with easy-to-understand information about BNPL, its uses, and associated risks through resources like FAQs or guidebooks similar to those published for other forms of credit.

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This capability is meant to appeal to the 40 million Americans who speak Spanish, the company said in a Tuesday (July 16) press release.

“At Sezzle, we’re committed to making financial freedom accessible to everyone, regardless of their background or the language they speak,” Charlie Youakim, CEO of Sezzle, said in the release. “The introduction of our Spanish translation capability is a significant step towards ensuring that all individuals have the tools they need to thrive financially.”

This addition offers a tailored experience for the 22% of Sezzle users who speak Spanish at home, including a user-friendly interface and transparent financial solutions, according to the release.

Another company that rolled out a Spanish-language version of its offering is FinTech mortgage lender Beeline.

Like Beeline’s existing offering, the new Spanish-language home loan experience, which is dubbed Colmena (“hive” in Spanish), will adjust to applicants on the fly, preapprove them in real time, and offer conventional or nonqualified mortgage products like bank statement loans.

In addition, with Colmena, Spanish speakers will be automatically routed down a Spanish customer journey and matched with a bilingual loan officer with certain loan documents in Spanish.

“The launch of Colmena underscores our dedication to making a meaningful difference in the lives of Latino families and fostering greater financial inclusion,” Nick Liuzza, CEO of Beeline, said when announcing the launch of that new offering.

In another recent move by Sezzle, the BNPL platform said in June that it launched a partnership with California’s Vallarta Supermarkets, saying it aims to meet the demand from shoppers to use BNPL for everyday essentials.

When announcing the partnership, Sezzle pointed to a 2024 survey by PYMNTS Intelligence showing that a third of U.S. consumers used a traditional credit card for their last grocery purchase, a figure that has held steady since 2021.

“The use of credit isn’t new to the grocery industry; Sezzle’s payment platform simply presents a modern adaptation of credit in the evolving landscape of consumer finance,” the company said at the time in a press release.

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The partnership will help these merchants meet the growing demand for BNPL, the companies said in a Tuesday (July 2) press release.

“Klarna’s global footprint enables Adobe Commerce merchants to meet the changing needs of their consumers and stay competitive in today’s digital economy,” Jason Knell, senior director of content and commerce partners at Adobe, said in the release.

The collaboration will offer thousands of merchants “a flexible, seamless and smooth way to accept payments,” Erin Jaeger, head of North America at Klarna, said in the release. “This enhances the shopping experience for consumers and boosts the operational capacities of merchants.”

The PYMNTS Intelligence report “Merchants’ Evolving Perspective on the Value of Card-Linked Pay Later Plans” found that BNPL is becoming more popular with consumers and is increasingly accepted by retailers. Eighty-five percent of merchants said the payment method was used more often during online checkout over the past 12 months.

Klarna reported in May that it achieved accelerated revenue growth in the first quarter, with its 29% increase in total revenue in the quarter outpacing the 13% rise it saw in the same period a year earlier.

“This surge is driven by our expanding presence in the U.S., where we continue to onboard major retailers,” Klarna said at the time. “As the preferred choice for consumers’ everyday spending, commerce thrives on the Klarna network.”

In other partnerships, Klarna teamed up with luggage and travel accessories brand Away to offer BNPL options to that firm’s customers, with ride-hailing app Uber to offer that firm’s users new ways to pay for rides and deliveries, and with travel company Expedia to bring flexible payment offerings to travelers in the United States.

As for Adobe, that firm said in March that it tapped unified commerce solution provider Adyen to enable online and in-store payments for global enterprise merchants that use Adobe Commerce. The partnership enables merchants to simplify and scale their customer payment experiences online, offline and across global markets.

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The buyers will assume ownership of KCO on Oct. 1, and Klarna’s payment methods will continue to be offered in the checkout, Klarna said in a Monday (June 24) press release.

Selling KCO will allow Klarna to concentrate on its flexible payment methods, which it offers in conjunction with multiple service providers, according to the release.

Klarna has run into conflicts by offering its payment methods directly to merchants through KCO and via distribution through payment service providers (PSPs) like Adyen and Stripe, Bloomberg reported Monday.

By divesting itself of KCO, it eliminates that competition and friction with PSPs and allows KCO to grow under new ownership, according to the report. Klarna has not actively built KCO since 2021 because it was focused on its relationships with PSPs.

In the company’s press release, Klarna CEO and co-founder Sebastian Siemiatkowski said: “I’m so pleased it’s finding a new home, with owners who are carefully handpicked to continue to create outstanding value for our merchant partners. I look forward to working closely with them as they establish the next phase for KCO.”

Having new, dedicated management will allow the KCO business to grow, per the release. Hajabdolahi and his BLQ Invest are known for their “Buy and Build” strategy.

“We are thrilled to acquire Klarna Checkout, and our ambition is to build on the solid foundation established by Klarna and take KCO to the next level, continuously evolving the product to meet the needs of our merchant partners and drive the future of eCommerce,” Hajabdolahi said in the release.

KCO was launched in 2012 in Northern Europe, according to the release. Today, it has a market share of 40% in Sweden and 20% across the Nordics; is available for global use; and features a user experience designed for conversion.

Klarna reported in May that it achieved accelerated revenue growth during the first quarter, with its 29% increase in total revenue outpacing the 13% rise it saw in the same quarter a year earlier.

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According to our report, “Navigating New Norms: The Use of Card-Linked Installment Plans in Online and In-Store Sales,” which was created in collaboration with Splitit, only about 6% of acquirers surveyed truly offer installment plan payment options linked to credit cards before or during checkout.

Indeed, only three out of 50 acquirers we surveyed offer pay later plans linked directly to credit cards from any FIs before or during checkout, which mirrors similar findings PYMNTS Intelligence uncovered late last year. Additionally, 22% of acquirers surveyed cited third-party integration constraints as something of a barrier limiting their ability to offer credit card-linked installment options.

The data on this variety in timing and type of pay later plan reveals a significant gap between perceived and actual capabilities, highlighting the need for enhanced direct integrations and more consistent installment offerings.

Yet, despite these challenges, opportunities for growth in the pay later payments market remain substantial. Six in 10 consumers have expressed an interest in pay later options when checking out, and those acquirers that innovate and integrate both general-purpose card-linked installment plans and buy-now, pay later (BNPL) plans could be in a better position to capture a larger market share.

Many acquirers recognize this opportunity; 45% of them say they plan to support general-purpose credit card-linked installment plans before checkout in the future, representing a 15% increase since October.

This shift indicates that more acquirers are recognizing the importance of meeting consumer and merchant needs by providing flexible payment options earlier in the purchasing process.

Still, there seems to be a disconnect between the enthusiasm for offering pay later plans and those acquirers actually doing it.

The gap likely stems from acquirers defining their capabilities in differing, if not competing, ways in the market. As mentioned, just 6% of those surveyed make their pay later plan capabilities available before or at checkout. This finding resembles one we discovered last year when PYMNTS Intelligence released “Acquirers’ Navigation of an Uncertain Installment Plan Landscape.”

At the time, 56% of acquirers claimed that they facilitated general-purpose credit card installment plans before or during checkout, but our research reflected a figure closer to 8.3%.

Our more recent data also reflects the uneven distribution of installment options across acquirers serving merchants in various industries and of different revenue sizes.

Last year, general-purpose credit card pay later plans were more prevalent among larger acquirers — those generating $1 billion or more in annual revenue — at 19%, compared to 7.4% reported in our more recent surveys. As the figure above illustrates, the overall concentration of installment plans of any kind in industries such as retail, restaurants and travel and leisure remain much the same.

These sectors reflect somewhat higher implementation rates for general-purpose credit card-linked plans in particular. By contrast, healthcare and education are areas where implementation efforts for this payment option could increase. While healthcare exceeds all sectors (except the restaurant industry) with 7.7% of acquirers offering merchants general-purpose card-linked installment plans, education lags all but eCommerce/retail.

These disparities suggest that sectors with more frequent and varied transactions are more likely to implement general-purpose credit card-linked plans, whereas sectors such as education may require more tailored payment solutions to accommodate their large but regular transactions.

With 61% of consumers expressing a preference for learning about pay later options before deciding what to buy, acquirers may want to consider advancing the availability of these payment methods earlier in the shopping process. Facilitating this shift could significantly enhance customer experience and align more closely with consumer and merchant expectations.

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In the United Kingdom, for instance, BNPL is getting one step closer to making its way into grocery stores. Klarna announced Friday (June 7) a partnership with British supermarket giant Sainsbury’s to provide split payments via the retailer’s Argos, Habitat and TU eCommerce platforms. This iteration of the partnership does not include Sainsbury’s grocery offerings but suggests the beginning of a working relationship between the two companies.

In California, grocery chain Vallarta Supermarkets implemented BNPL via Sezzle June 3.

“At Vallarta, our priority is to enhance the shopping experience for our customers,” Vallarta Supermarkets Chief Information Officer Steve Netherton said in a statement. “Partnering with Sezzle allows us to offer a new-age, convenient payment option that aligns with the needs of our diverse community.

The move comes as ongoing budgetary pressures prompt consumers to seek ways to make their grocery purchases more affordable.

“Consumers who use BNPL get the benefit of spreading grocery payments over three or four installments over a similar four- to six-week period,” PYMNTS CEO Karen Webster noted earlier this year. “Getting the use of the BNPL provider’s money, for free, over that period is enough of a reward for many consumers, especially when everyone across every income level feels the persistent pinch of food inflation.”

Many consumers want to be able to pay for their grocery purchases in installments. The September PYMNTS Intelligence study “Installment Plans Becoming a Key Part of Shopper’s Toolkit” found that among the 60% of consumers who had used some type of installment payment plan in the previous 12 months, 34% had done so to purchase groceries. Plus, younger consumers exhibited greater demand for installment plan options for groceries, as that share rose to 45% for Generation Z.

As such, BNPL providers are looking to grow their share of grocery sales. Sezzle, for instance, is using its Anywhere paid subscription, which enables consumers to pay in installments in any store where Apple Pay or Google Pay is accepted, to enable BNPL grocery payments.

“Our Anywhere members are shopping at a broader array of locations and are making everyday purchases at general merchandise retailers, grocery stores and restaurants to meet their discretionary needs,” Sezzle Executive Chairman and CEO Charlie Youakim told analysts on an earnings call in May.

BNPL users, for their part, often use the payment method to buy groceries when given the option. The PYMNTS Intelligence study “The Credit Economy: How Younger Consumers Make Credit Decisions” found that many BNPL users leveraged the option to buy groceries. Eleven percent of Gen Z, 15% of millennials and 14% of Generation X said that the most recent time they used BNPL, they did so to pay for groceries.

Affirm, too, aims to grow its grocery share. Affirm founder and CEO Max Levchin told analysts on the company’s most recent earnings call that it can use its scale to “sort of barge into some of the checkouts” that used to have exclusive deals with competitors. He noted that its extensive user base (the company had nearly 18 million active customers in the third quarter of fiscal year 2024) proves attractive to merchants.

“The first fundraising deck that I’ve ever put together for this company featured a mockup [of] a convenience store door that showed Visa, Mastercard, Amex, Affirm,” Levchin said. “The ultimate goal of this company is to be a brand that everybody just expects in a grocery store door.”

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This is one of several new features that will be added to Apple Pay in the fall, Apple said in a Tuesday (June 11) press release.

“Apple Pay introduces even more flexibility and choice for users when they check out online and in-app,” the company said in the release. “Users can view and redeem rewards and access installment loan offerings from eligible credit or debit cards when making a purchase online or in-app with iPhone and iPad. These features will be available for any Apple Pay-enabled bank or issuer to integrate in supported markets.”

Apple’s rollout of the ability to redeem rewards for a purchase with Apple Pay will begin in the United States, according to the release. It will be available with Discover, Synchrony and across Apple Pay issuers with Fiserv.

The rollout of the ability to access installments from credit and debit cards with Apple Pay will start in four countries, per the release. It will be offered in Australia with ANZ; Spain with CaixaBank; the United Kingdom with HSBC and Monzo; and the U.S. with Citi, Synchrony and issuers with Fiserv.

The features will be added this fall with Apple’s release of new versions of its operating systems, including iOS 18 and iPadOS 18, the release said.

Affirm disclosed the new offering in a Tuesday filing with the Securities and Exchange Commission, saying: “Affirm does not expect this partnership to have a material impact on revenue or gross merchandise volume in fiscal year 2025.”

PYMNTS Intelligence found that Apple Pay has overtaken PayPal as consumers’ favorite in-store mobile wallet. As of the second quarter, roughly 6% of consumers made their last retail purchase using Apple Pay, while 4% used PayPal.

Apple also announced Tuesday that the iOS 18 iPhone update will include a new way for users to transfer funds, dubbed “Tap to Cash.”

“With Tap to Cash, users can send and receive Apple Cash by simply holding two iPhone devices together,” the company explained.

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By the Numbers

The PYMNTS Intelligence report “Tracking the Digital Payments Takeover: What BNPL Needs to Win Wider Adoption” was based on a survey of over 3,100 consumers to explore their use and experiences with deferred payment plans.

The results showed that consumers increasingly opt for credit card installments for larger purchases because BNPL services lack common features of credit cards, such as reward programs and higher credit limits. Additionally, consumers reported that BNPL is not as widely available in stores. The study found that 38% of consumers expressed a desire for BNPL to offer more available and higher-quality rewards.

The Data in Context

Some providers are already taking steps in this direction. In May, Sezzle introduced Payment Streaks, a feature that enables users of the company’s BNPL service to advance through loyalty tiers by consistently making on-time payments. Through the program, every on-time payment is considered a “streak.” Users advance to the next loyalty tier after reaching the necessary streak count within a rolling 90-day period.

Yet not all efforts in the space have been successful. In February, Affirm axed its rewards program.

“We’re constantly testing new features and looking for ways to improve Affirm’s products,” a company spokesperson told PYMNTS in a statement at the time. “While Affirm’s Rewards beta program will no longer be available, we are continuing to explore how we can bring a best-in-class rewards experience to our consumers.”

Plus, in January, Afterpay ended its Pulse Rewards program, which had been around since 2020, teasing the upcoming launch of a new loyalty program at some point this year without providing further details.

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