As BNPL providers gain market share, banks aim to strengthen their pay-over-time options. Embedding instalment plans at checkout, leveraging customer data for personalization, and forming merchant partnerships can help banks optimize adoption and compete on cost.
Buy Now, Pay Later (BNPL) has gone mainstream — particularly among younger consumers. According to Billtrust’s 2025 Gen Z & Digital Payments Report, BNPL usage among Gen Z jumped from 26% in 2023 to 46% in 2025, a 77% increase in just two years, primarily using it for spending on everyday purchases.
For banks, this shift highlights a challenge. While credit cards still dominate overall spending, BNPL’s influence grows as Affirm and Klarna integrate directly into checkout experiences. Now, banks are ramping up their pay-over-time offerings, with some embedding instalment options into credit cards and mobile banking apps.
“What we’re witnessing with BNPL isn’t just adoption — it’s a shift in how people approach payments altogether,” Sunil Rajasekar, CEO of Billtrust, an integrated payments solution for B2B services, tells The Financial Brand. “Gen Z consumers don’t stick to one payment method. Instead, they combine traditional credit, BNPL, and digital wallets depending on the specific purchase — something we didn’t see with previous generations.”
Banks may need to refine their pay-over-time strategies and focus on competing on seamless integration, personalized offers, and competitive pricing.
Banks’ Built-In Advantage: Relationships and Trust
BNPL services have grown quickly, but banks still have an edge: consumer trust and built-in relationships. Unlike some BNPL providers, banks already have customer financial data, credit histories, and digital banking platforms, allowing them to offer instalment options without requiring customers to sign up for a new service.
Trust can be a key differentiator. According to eBizCharge, 54% of consumers still prefer using traditional credit cards and banking methods over BNPL. Trust is especially important for high-value purchases, where consumers may feel more comfortable using their bank’s card or instalment options over a third-party provider.
“Consumers have established relationships with their banks, and when instalment options are offered within familiar banking apps, there’s no need to sign up for a new account or navigate an unfamiliar provider,” Brant Peterson, global head of payments optimization & security products at Worldpay, a global payments technology and solutions company, tells The Financial Brand. “This reduces friction, enhances adoption, and gives customers confidence in their financing choices — especially for higher-ticket purchases when trust and transparency matter most.”
To capitalize on this advantage, more banks are embedding instalment options directly into their digital banking experiences, making it easier for cardholders to opt into a pay-over-time plan. Some issuers, like Elan, now offer point-of-sale instalment lending through ExtendPay®, giving customers an alternative to third-party BNPL services.
Placement Matters When Capturing Customers at Checkout
BNPL offers installment payments and controls where and when the options appear. Third-party BNPL providers embed financing directly into checkout experiences, capturing customers the moment they’re deciding how to pay. However, many bank-led pay-over-time programs offer post-purchase options, making them less visible during checkout.
This difference is critical. According to Billtrust, nearly 70% of Gen Z say digital payment options influence their perception of a brand. McKinsey found that 74% of consumers prioritize fast and secure checkouts. If consumers don’t see a bank’s instalment plan at checkout, they may assume it’s not available and opt for a BNPL provider instead.
“Credit card companies offering fixed instalment plans must ensure that customers fully understand which purchases can be converted into fixed instalment plans,” says Sean Gelles, senior director of payments intelligence at J.D. Power, a global data analytics and consumer insights company. “Overall satisfaction significantly decreases when customers do not completely understand which credit card purchases can be converted into fixed instalment plans.”
Banks need to consider prioritizing placement. Some are working to embed instalment options earlier in the buying journey, using digital wallets, pre-purchase notifications, or merchant partnerships to increase visibility.
“BNPL providers have excelled at seamlessly integrating their offerings into the customer purchase journey, often securing financing before or during the checkout process,” Matthew Little, Vice President of Product at Episode Six (E6), a global provider of ledger and cards infrastructure, tells The Financial Brand. “If banks can’t capture the loan at these critical moments, they risk losing the opportunity entirely.”
Shifting from post-purchase to at-checkout financing can help banks improve adoption rates and position instalment plans as a BNPL alternative.
How Banks Can Compete on Cost
BNPL’s advantage is its zero-interest, fee-free instalment plans. It’s a model banks struggle to match. While traditional credit card instalment programs often include interest charges or fees, many BNPL providers generate revenue from merchant fees, late fees, and flat transaction fees. The difference in pricing makes BNPL appealing for cost-conscious shoppers.
Banks may need to rethink their pricing models. Some issuers are experimenting with lower-cost instalment options, while others use tiered pricing models.
“Banks face a unique challenge here: BNPL providers monetize through merchants, while traditional lenders typically rely on interest and fees paid by consumers,” says Little. “Unless banks can establish similar merchant partnerships, they must rethink how they drive revenue from instalment lending.”
One way banks are addressing this challenge is through personalization, and creating instalment plans that better fit customer needs. Since banks have deep insight into customer data they can offer more tailored terms at key moments.
“Banks have access to deep customer insight into spending behaviour, credit profiles, and purchase patterns which allows them to tailor instalment offers in ways that BNPL providers simply can’t,” says Peterson. “Instead of a one-size-fits-all approach, banks can offer customized repayment terms based on spending habits, personalized interest rates that align with creditworthiness, and relevant offers delivered at the right moment — such as when a customer is making a large purchase.”
With BNPL projected to reach over $1.4 billion globally by 2029, banks can’t afford to compete on cost alone. Combining flexible pricing with personalization can help drive adoption and long-term profitability.
Merchant Partnerships Are Banks’ Competitive Edge
BNPL providers rely on merchant partnerships to help subsidize their instalment plans, with merchants paying fees ranging from 2% to 8% per transaction. Banks are expanding merchant relationships and positioning themselves as a potential lower-cost alternative to BNPL services.
“In some markets, banks are also engaging directly with merchants to bypass BNPL providers altogether,” says Little. “BNPL services — similar to food delivery platforms — often come with high merchant fees. Banks can position themselves as a more cost-effective alternative, offering merchants better financing terms while reclaiming some of that lost market share.”
This shift is already happening. Some banks partner with merchants to offer instalment plans through existing credit cards, eliminating the need for third-party BNPL services. Others, like Citizens Pay and Chase Afterpay, embed financing at checkout, creating alternatives to standalone BNPL offerings.
“It is hard to compete against no fee or zero per cent offers no matter how banks structure their pricing,” says Tarik Camurdes, senior director, product management at FIS, an international provider of information technology services and billing solutions. “The construct where merchants generate incremental sales and ready to subsidy loan or plan funding in return is the best way to cope. Then banks can add convenience, trust, and transparency to position themselves a step ahead.”
Expanding merchant partnerships and leveraging existing credit card infrastructure can help banks offer retailers lower-cost alternatives to BNPL.
What’s Next for Banks?
As BNPL providers continue to expand, banks need to consider how to strengthen their pay-over-time offerings. Success may depend on seamless integration, strategic pricing models, and merchant partnerships that embed instalment options at the checkout.
“Payment flexibility has become a true differentiator, not just a back-office function,” says Rajasekar. “Companies that cling to traditional payment models risk losing relevance in this evolving financial landscape.”
Banks that proactively refine their strategies will be in a strong position to retain customers and drive long-term growth.
Source: THE FINANCIAL BRAND
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