Opinion: How Installment Options Can Future-Proof Credit Cards

Credit card companies may have shrugged off the appeal of Buy Now Pay Later, but after Klarna’s recent IPO, they’re surely not shrugging anymore.

Almost $1.4 billion raised, and a $19.5 billion valuation for the BNPL pioneer. It’s a sign of something happening that’s difficult to pull off, and even more difficult to undo: shifting consumer behaviors. 

BNPL is now projected to surpass $560 billion in 2025, rocketing to $911 billion by 2030. That should be a red alert for the reigning powers in the payments industry. But rather than taking on BNPL as an existential threat, they should see it as an opportunity.

After all, the idea is not proprietary, or even new. Spreading out a purchase into a few predictable payments at little or no interest is preferable to what consumers fear most about credit cards: A revolving-debt nightmare at average interest rates of more than 20%.

This trend essentially forces consumers into better financial behaviors. If debts are getting repaid in short order — such as the common ‘Pay in 4’ option, of four equal installments — that’s good for everyone, including the borrower, the merchant, and the issuers.

But if you think this all spells doom for the payment powers that be, think again. Because these very same capabilities are already available on many general-use cards.

It’s just that traditional cards and issuers haven’t been great at advertising such options, so consumers may not even know about their availability. Lenders are understandably a little reticent, since offering no-interest installments eats away at their usual margins. 

BNPL is projected to surpass $560 billion in 2025.

As a result, the growth of BNPL on general-use cards has been a meager 0.8% annually over the last two years. But they would be wise to get on this bandwagon, and quickly, because consumers are already showing an affinity for installment purchases.

So much so that there has been a resurgence of old-fashioned branded store cards, many of which offer such payment flexibility right at the checkout counter.

And it’s not just younger generations in play, even though Gen Z is certainly leading the charge in this new payment landscape. According to recent PYMNTS Intelligence data, Boomers and seniors also saw their use of installment plans (on both store cards and general-use cards) go up by 11%, even more than Gen Z.

Another myth to bust: It’s not just lower-income or unbanked consumers here, people who might not have been able to get access to credit lines on traditional cards. The reality is that high-income households spend 40% more on BNPL than do lower-income households.

All of that indicates a sea change is already underway. The good news for card giants is that they have plenty of weapons in their arsenal. They just need to enter this field of play more aggressively, and put those weapons to use.

For example, their ubiquity means they can offer such services to existing customers, to preempt them from defecting to BNPL specialists like Affirm or Afterpay. Indeed, they already do: American Express has Plan It, Chase has Pay Over Time, Citibank has Flex Pay, and so on. 

But the awareness of such payment alternatives is still lacking, which can be fixed with more aggressive marketing. They can also partner with retailers to ensure options are regularly offered at the point of sale (whether in person or online). And BNPL can be offered even after purchases have been made.

Credit-card companies and issuers can also leverage their extensive rewards programs, to which consumers are quite loyal, and which BNPL firms do not have to the same extent. They also offer stronger consumer protections, in areas like fraud and disputes.

And their reporting to credit bureaus, unlike many BNPL operators, makes for a more powerful credit-building history.

In the world of installments, credit cards can have the upper hand with their rewards and credit-building capabilities.

Another response here is to join forces, with the philosophy that a larger pie benefits everyone. For instance, Klarna’s CEO recently said a new Visa-powered debit card already has five million people on its waiting list – indicating that there is plenty of room here for companies to work together.

This kind of rapidly changing business model may be unsettling to some. But that’s capitalism at its best: New competitors offering a product that consumers are responding to and forcing an industry to reinvent itself.

The end result is focusing on customers and what they want, giving more payment options than they had before, and offering predictability about what exactly will come out of their account and when.

Smart companies will witness what is happening, adjust offerings accordingly, and listen to what their customers are obviously telling them. If they don’t, those customers may walk out the door – and by then, it may be hard to get them back.