In a recent move, JPMorgan Chase has announced that it will prohibit customers from using its credit cards to pay for ‘buy now, pay later’ (BNPL) services starting October 10. This decision will affect transactions with companies like Klarna, Affirm, and AfterPay.
The bank has been notifying customers to update their payment methods to avoid any disruption in their payments or the incurrence of late fees. According to Chase, BNPL loans are a form of credit, and it does not permit its credit cards to be used to pay off other credit products, as reported by The New York Times.
This policy change aligns with Chase’s strategy to promote its own BNPL service, Chase Pay Over Time. This service allows customers to split purchases over $100 into monthly installments with no interest, but with a fixed fee. Customers must use a Chase credit card and can choose to pay over six, 12, or 18 months.
Financial experts suggest that Chase’s move aims to steer customers towards its own financial products. Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, commented to Newsweek that this strategy indicates Chase’s intent to phase out third-party BNPL programs, encouraging customers to adopt Chase Pay Over Time for similar transactions.
Other major financial institutions have similar policies. American Express and Citibank offer their own BNPL services, while Capital One banned the use of its credit cards for BNPL loans in 2020. Sarah Strauss, head of customer services and strategy at Capital One, stated that the bank encourages responsible debt repayment and does not allow its credit cards to be used for other forms of debt, including BNPL loans.
JPMorgan Chase’s recent decision to prohibit credit card payments for Buy Now, Pay Later (BNPL) services, effective October 10th, raises significant questions about the evolving landscape of consumer credit and the competitive dynamics within the financial industry. This strategic move, while aligned with Chase’s broader objective of promoting its own BNPL service, has the potential to disrupt the BNPL ecosystem and trigger a cascade of adjustments among key players.
The ban directly impacts leading BNPL providers such as Klarna, Affirm, and Afterpay, who have heavily relied on credit card transactions to facilitate customer purchases. By removing a major payment channel, Chase’s decision could curtail transaction volumes and revenue streams for these companies. Furthermore, the increased friction for consumers who previously utilized credit cards for BNPL payments may deter future usage, thus shrinking the potential customer base for BNPL providers.
This policy shift also sets a precedent that could be emulated by other major financial institutions. If this trend gains momentum, it could create a systemic competitive disadvantage for BNPL providers, potentially leading to a loss of market share and necessitating strategic pivots in their business models. The repercussions could extend beyond individual companies, prompting industry-wide adaptations to navigate the changing regulatory and competitive landscape.
Moreover, Chase’s move could further intensify regulatory scrutiny on the BNPL industry. Regulators may perceive this development as an indicator of inherent risks associated with BNPL, potentially leading to stricter regulations and oversight. Such regulatory interventions could pose additional challenges for BNPL providers, necessitating further adjustments to their operational frameworks and compliance protocols.
Can Standalone BNPL Providers Adapt?
This shift could also drip feed a fundamental re-evaluation of BNPL providers’ business models. With the convenience and rewards of credit card payments no longer a viable option, these companies may need to pivot towards alternative payment methods like direct debit or bank transfers. This transition could result in increased operational costs and potentially less attractive terms for consumers accustomed to the perks of credit cards. It might also disproportionately impact younger demographics and those with limited credit history, who often rely on credit cards to build their financial standing. To mitigate the risk of customer attrition, BNPL providers will need to invest in developing user-friendly and enticing alternatives, potentially partnering with other financial institutions or creating proprietary payment solutions. The success of these efforts will be crucial in determining their continued relevance and growth in the evolving consumer credit landscape.
The BNPL Industry
The BNPL industry has grown significantly, especially during the Covid-19 pandemic, due to the surge in online shopping. These services typically offer interest-free payments if installments are paid on time, but missed payments can lead to substantial fees. Critics argue that BNPL services can exploit vulnerable consumers, increasing their debt burden and potentially harming their credit scores.
Consumer advocates have been calling for stricter regulations on the BNPL industry. In May, the Consumer Financial Protection Bureau (CFPB) introduced a rule requiring BNPL companies to provide consumers with the same legal rights and protections as credit card lenders. This includes the ability to dispute transactions and request refunds.
Using credit cards to pay off BNPL loans is generally discouraged by regulators and consumer advocates, as it can lead to higher interest costs if the credit card balance is not paid off in full. The average credit card interest rate is currently 24.84 percent, according to LendingTree. Lauren Saunders, associate director of the National Consumer Law Center, remarked to The New York Times that using a credit card to pay for a BNPL loan undermines the purpose of the loan.
The CFPB’s new rule emphasizes that regardless of the payment method, consumers are entitled to protections under existing laws and regulations. CFPB Director Rohit Chopra stated that consumers should have these protections whether they use credit cards or BNPL services.
This policy shift by Chase reflects a broader trend in the financial industry, where banks are increasingly pushing customers towards their own products and services while navigating the evolving regulatory landscape of BNPL offerings.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any financial institution or regulatory body. This article is intended for informational purposes only and should not be construed as financial or legal advice. Readers are encouraged to consult with a qualified financial advisor or legal professional before making any decisions based on the content of this article. The author and publication are not responsible for any actions taken based on this information.
