- Key insights: U.S. Bank launched the Split card, a Mastercard that turns purchases into three-month installment plans.
- What’s at stake: Buy now/pay later is gaining a larger share of consumer payments at the expense of credit card spending, and banks have been looking for ways to get in on the action.
- Forward look: Expect banks to continue to test pay-over-time financing.
Buy now/pay later continues to gain popularity as a consumer payment option, forcing banks to experiment with different ways to add installment options.
U.S. Bank is the latest bank to venture into the pay-over-time industry with the launch of the Split Card, a Mastercard that turns purchases into three-month installment plans.
Here’s how it works. Transactions of more than $100 are automatically put into a three-month installment plan. Any transactions that are under $100 are aggregated at the end of the month, and placed into their own three-month installment plan. Customers have the option to extend the installments to six-month or 12-month terms for a flat 1.5% monthly fee.
Similar to a credit card, consumers have a spending limit on the card; and the card is underwritten to the consumer based on their credit history, rather than per transaction, the way fintech BNPL providers underwrite.
The move is an effort to entice younger consumers that prefer BNPL over traditional revolving credit cards, Courtney Kelso, head of consumer and small-business payments at U.S. Bank, told American Banker.
“We know that pay-over-time solutions have been quite popular and are gaining in popularity, especially for Gen Z,” Kelso said. “Our belief is that this is a really important product to introduce customers that may not already be a customer of U.S. Bank to our suite of offerings.”
The card also attempts to redirect its own customers’ spending back to the banks’ channels, Kelso said. “Many of these customers are relying on these types of payment plans, but they have them through a bunch of different providers. This brings it all into one place.”
This isn’t U.S. Bank’s first foray into BNPL. The bank modeled the Split card off its post-purchase pay-over-time product called Extend Pay, which lets consumers break up purchases over $100 into installments.
“We have offered a plan-it-type feature, called Extend Pay, on our cards for the last couple of years, and its been very popular,” Kelso said. “So we know there is a lot of demand.”
Banks and credit unions have been experimenting with different ways to add BNPL-like products to consumers. JPMorganChase offers pay-over-time options on some of its credit cards, including the Sapphire Card, Citi has a post-purchase BNPL product called Flex Pay, and
The Split card capitalizes on the fervor around BNPL, Ben Danner, a senior analyst at Javelin Strategy & Research, told American Banker.
“Banks have been taking BNPL seriously for a while now,” Danner said. “It’s a threat to card volume, particularly among private label cards and store financing. With the launch of
Banks are hoping that they can capitalize on the trust they’ve built with consumers to edge out fintechs, Danner said. “The capabilities of installment financing and zero percent are important, however, it also comes with the added trust factor of being administered through a traditional financial institution.”