More and more startups are using buy-now/pay-later-style instant online credit approvals to streamline consumer access to revolving credit.
The concept seems to be the reverse of what made BNPL loans popular – consumers often use BNPL loans for a single purchase because they don’t want to have a large balance to pay off in perpetuity. But technologies developed to support BNPL’s rapid loan decisions can be applied to longer-term loans for multiple items.
FuturePay, which launched this month through a partnership with Cross River Bank, uses a model that allows e-commerce merchants to instantly extend a revolving credit loan to customers.
First and foremost, FuturePay benefits from the convenience that has made BNPL loans so popular by giving consumers an immediate funding option the moment they shop. On the back-end, FuturePay relies on Cross River to provide compliance and account management for a traditional credit card loan.
“FuturePay is a hybrid that sits between a BNPL loan and a regular credit card because we have the convenience of an instant decision that goes through the merchant’s website, but consumers have the option of paying off the loan immediately or to renew it with simple terms,” said Tim Harris, CEO of South Jordan, Utah-based FuturePay.
There are a few other things that set FuturePay apart from a traditional credit card. Instead of an interest rate, FuturePay charges users a flat fee of $1.25 for every $50 increment of credit used.
FuturePay has also built in more fees than most BNPL providers, which could help offset the costs. There is an annual fee of $25 for a FuturePay account, and the fee for late or returned payments is $38. Harris says the fees are more transparent and simpler than traditional credit cards.
“This innovative product helps fill a gap in the market and bring responsible lending solutions to more consumers,” said Adam Goller, head of fintech banking at Cross River, in a press release.
FuturePay’s role as an intermediary managing credit between customer and merchant could be tricky for a number of reasons, observers note.
BNPL fintechs are currently struggling to maintain the funding needed to fund large tranches of outstanding debt for fast-growing loan volume, even for short-term loans. The valuation of the giant BNPL Klarna fell this week to what investors believe to be around $6.5 billion, from $45.6 billion a year ago, as the company continues negotiations to raise $650 million in additional funding .
“Alternative lending sources often work well during economic expansion,” said Rick Oglesby, president of advisory firm AZ Payments Group, noting that it’s harder to keep lines of credit open while maintaining profitability. when the economy contracts.
According to Oglesby, having a banking partner could be a competitive differentiator for FuturePay in today’s tight economic market.
Another example is the private label digital credit card issuer Tandemwhich recently raised $60 million from backers including Google to support an artificial intelligence-based system that offers customers merchant-funded rewards for every purchase through a revolving credit loan available on the participating retailer’s website.
FuturePay initially targets consumers who make repeat purchases from e-commerce merchants in niches such as pet supplies, cosmetics, eyewear and sporting goods, Harris said.
The company hopes that with enough participating merchants, it can create some sort of network effect among its users, who could use FuturePay’s “MyTab” feature to add purchases from other e-commerce sites that support the single revolving line of credit service.
New customers who see FuturePay as an option on a retailer’s website can click to see if they qualify for loans of $1,000 to $5,000. Underwriting decisions, with help from Cross River, are made in near real time using basic customer information such as name, phone number, date of birth and social security number, as well as an email address.
For each purchase with a FuturePay account, the user must choose “MyTab” on the merchant’s payment page and enter a username and password, and he can see a running total of new purchases made by logging in to their account.
FuturePay charges merchants 1.5% of the purchase price for payment processing, which is approximately one hundred basis points lower than the overall cost of accepting network-branded credit cards with interchange rates of approximately 2.2% on averageaccording to Harris.
Merchants receive funds from sales within two days. FuturePay takes responsibility for handling any customer-merchant disputes and ensures consumers get their money back if an item is sent in error, Harris said.
FuturePay says it’s still early days and hasn’t announced any participating retailers, but it says it’s confident demand exists for its service.
“BNPL loans have generated a lot of excitement as consumers are looking for alternatives, and 90% of e-merchants are still not among them. We’re purpose-built for e-commerce,” Harris said.