Credit unions and small banks can use BNPL to compete with big banks

The news: Smaller card issuers are missing out on the card-linked installment opportunity, per the Financial Brand.

What’s happening? As buy now, pay later (BNPL) use rises, it’s taking potential volume away from credit cards, leaving issuers to miss out on this growth and important interchange income.

• More than one-third (34.4%) of US internet users will pay via BNPL this year, according to our forecast.
• We forecast BNPL payment value will total $108.43 billion in 2025.

Smaller issuers are also competing for volume with card-linked installment options from larger issuers, which have been growing in popularity.

• Chase launched Travel Now, Pay Later in July, an installment offering for its travel cards, which first rolled out with the Marriott Bonvoy Bold card.
• And in September, Citi made Flex Pay available on its travel booking platform, without its usual fees or interest.
• Synchrony also made its Pay Later option available directly in Apple Pay in January.

The bigger picture: Card-linked installment plans have an edge against traditional fintech BNPL plans. Their higher customer satisfaction levels make them a strong investment opportunity.

• The top three ranked installment plans in J.D. Power 2025 US Buy Now Pay Later Satisfaction Study were card-linked plans. Plan it by American Express came in first, followed by Chase’s Pay Over Time and Citi Flex Pay.
• Klarna had the highest score of any fintech, coming in fourth place.

Our take: Investing in debit card-linked offerings can help smaller banks and credit unions avoid losing out on payment volume and make them more competitive with larger issuers.

• It would give them an early mover advantage: Chase is the only top issuer with an installment offering tied to its debit cards.
• They also have a better chance of competing on debit than credit: It’s difficult for smaller issuers to offer the same expansive credit card rewards that larger issuers have.

To do this, they could work directly with Mastercard One Credential or Visa Flexible Credential or with one of those solutions’ partners, like i2c and Marqeta. They could also work with FIS, which recently teamed up with Affirm to bring the fintech’s BNPL solution to its bank partners.