Independent Banker - January 2022 - 23

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They provide a straightforward way
to purchase an item and split its cost
over a set period of time, generally
four payments over six weeks.
" It's a loan that allows consumers
to access the product quickly, have
the certainty of knowing when the
obligation will be finished ... rather
than comparing it to the revolving
credit of a credit card, " says Laura
Udis, payday and small dollar
lending program manager at the
Consumer Financial Protection
Bureau (CFPB).
But disadvantages exist as well,
including fees invoked for late
payments and reduced consumer
protections for the purchased
products. For example, BNPL
product credit rate disclosures are
not included under Truth in Lending
Act requirements, and while some
disclosures are provided, they may
not be as clear as those for credit
cards. In addition, error and dispute
resolution and basic returns may be
more complicated when using BNPL.
" If consumers are returning
items that they purchased, there
are different return procedures and
billing procedures that come into
play compared to using credit cards, "
Udis says. " It may be easier to use a
credit card if a consumer isn't certain
that they will keep the product. "
Why Cross River Bank is embracing BNPL
Following a banking-as-a-service (BaaS) model, Cross River
in Fort Lee, N.J., services multiple buy now, pay later (BNPL)
providers, from a much-touted relationship with market leader
Affirm to a newly launched partnership with U.S. newcomer
Openpay. The community bank provides core infrastructure and
embedded financial solutions to fuel BNPL products for consumer
banking loans.
" At the end of the day, we're all trying to meet the demand of
consumers, " says Phil Goldfeder, senior vice president of global
public affairs. " Cross River, by building our own technology-
essentially serving as a de facto technology company ourselves-
we're able to meet those needs without compromising on our
responsibility to the banking infrastructure. "
Consumers may face financial
hurdles when using BNPL
products, too. A Credit Karma/
Qualtrics study found that 34%
of those who used these services
have fallen behind on one or more
payments, and 72% had their
credit score lowered.
QUICK STAT
72%
of buy now, pay later users
experience credit score
degradation
Source: Credit Karma/Qualtrics Survey
BNPL: The community bank play
Those drawbacks present
opportunities for community
banks to emphasize their roles
as trusted financial partners. For
example, products competitive
with BNPL solutions, such as
the Visa Installments Solution
or Mastercard partner Splitit,
introduce avenues for community
banks to engage with BNPL as a
customized feature for credit card
holders on approved credit lines.
In addition, education may go a
long way in supporting consumers
who may otherwise choose BNPL
products. Reminding customers
about the protections of credit
cards and the benefits of card
rewards programs may help
them embrace and choose a cardcentric
solution instead of a POS
installment payment.
The quick rise of BNPL means
community banks must address
that growing demand to remain
competitive. In fact, McKinsey
estimates that banks are already
losing between $8 billion and
$10 billion in annual revenues to
these new offerings.
Goldfeder recommends looking
beyond today's hype at the bigger
picture to form a strategic response.
" It's an evolution. It used to be
that if you were a lending company,
you lent. If you were a payments
company, you were in the payments
space. There's more and more
expansion of verticals, " he says.
" The next logical question is, 'OK,
today Openpay is doing buy now, pay
later. What are they going to want
to do next?' Cross River is already
positioning itself to be able to service
whatever that next [thing] is. " 
Colleen Morrison is a writer
in Maryland.
independentbanker.org Q 23
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Independent Banker - January 2022

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