Why Citi is adding more point-of-sale financing

Citigroup sign
Citi is adding more point of sale finance options to its own merchant services.
Patrick T. Fallon/Bloomberg

As banks increasingly take the reins in buy now/pay later lending, Citigroup is going a step farther by introducing multiple point-of-sale finance options to appeal to merchants. 

Citi Retail Services is adding financing choices at the point of sale through its Citi Pay brand. The bank is competing against other banks and large payment companies that are expanding their own point-of-sale financing options as the fintechs that traditionally dominated the market struggle. 

"Citi and other large banks are probably better positioned to offer point-of-sale lending or BNPL," said David Shipper, a strategic advisor in Aite-Novarica's payments and banking practice. "Banks can play here." 

The first point-of-sale financing product from Citi Pay, Citi Pay Credit, is a digital credit card and line of credit. City Pay Credit enables merchants to offer promotional financing, and consumers can opt in for a purchase plan based on what the retailer offers. This product is distinct from Citi credit cards and is designed for larger purchases at the bank's merchant partners. 

Consumers can apply for Citi Pay Credit within the checkout process at retailers and receive a credit and authorization decision before paying. In the coming months, Citi Pay will introduce installment loans, which enable consumers to pay through monthly payments over a period of six to 60 months based on the retailer's policies and type of purchase. 

"Citi is intending to support multiple business models, from a revolving line of credit like a private-label store care to a 'pay in 4' model like products from PayPal, Affirm and others," said Aaron McPherson, a principal at AFM Consulting Partners.

Citi already offers BNPL through Citi Flex Pay. Citi recently signed a partnership with Amazon to add Citi Flex Pay as an option in Amazon Pay checkouts for Citi credit card customers, expanding a BNPL partnership between Amazon and Citi that dates to 2020. Amazon's BNPL support for Citi Flex Pay enables installments of between three and 48 months on Amazon Pay e-commerce sites. 

The newer Citi Pay releases add point-of-sale financing options as part of embedded payments, or a strategy that relies on enrolled payment credentials as a way to add more financial services or a path to buy other products from non-financial services providers. Visa, for example, uses embedded payments to fuel its services strategy for industries such as travel. By building its base of payment or card consumers, Citi can stack more services on top of payments for both merchant and consumer clients. Citi did not provide comment for this article by deadline. 

Banks that have a merchant services division or product can pair BNPL with other financial products for retailers, Shipper said. 

Citi's growing range of point of sale credit options is the culmination of a trend of large banks seeking to compete in the buy now/pay later lending space, sensing opportunity as some of the fintechs that originated in the space struggle, according to McPherson.

The fintechs that dominated BNPL's early growth in the U.S. in 2020 and 2021 had a difficult 2020 due to a weakening economy and government scrutiny into the companies' lending practices. Many of these firms cut jobs and saw a dip in their valuations, though there are some signs the fintech BNPL sector is improving in 2023. 

Banks and the credit card networks have stepped up their game in the current environment, offering BNPL as part of a larger range of fully-regulated payment choices. Citizens, which has offered installment lending for smartphones for years, has expanded its point-of-sale credit lending to include products such as web-enabled home appliancesMastercard has built a network of banks that offer BNPL through a service at the card brand that enables installment lending for card issuers, and Visa operates a similar service. Companies such as Jifiti offer services that enable banks to offer BNPL loans through merchants. 

Apple also recently introduced Apple Pay Later, a lending option that is geared towards building the user base for Apple Pay in addition to offering point-of-sale credit. And large technology-focused payment firms such as PayPal and Block offer BNPL as a way to bolster their relationships with merchants. 

The companies are attracted to a market that, despite the economic and regulatory challenges to fintechs, is popular, particularly among coveted younger consumers. 

Sixty percent of Generation Z and 66% of millennials report being likely to use BNPL, according to research from Arizent, American Banker's publisher. The Arizent research additionally found that 47% of consumers who received a BNPL offer made a purchase, and 38% said BNPL enabled them to make a purchase within their existing cash flow. 

Banks will be challenged to balance demand for BNPL with traditional credit cards, according to Shipper. While there isn't hard data, consumers who are presented with a credit card alternative tend to make that choice rather than the traditional credit card, he said. "If there is a better rate or a promotion around it, then consumers will choose that." 

As banks move deeper into BNPL, another challenge they may face is managing a potential demand drop off that could come through tighter underwriting for BNPL loans. PayPal does a "soft" credit check for BNPL that doesn't impact a consumer's credit score, while Block's Afterpay does not do a credit check, according to Arizent's research.  

"One of the reasons BNPL was so popular, and later problematic, was the willingness to grant credit to underserved consumers," McPherson said. 

While the theory was that a limited line of credit without a revolving feature would keep borrowers from overextending, competition led to consumers being able to acquire multiple BNPL loans at once, which McPherson said undermined the risk model.

"If Citi seeks to avoid this problem by checking whether consumers already have BNPL loans outstanding, then its impact on the market will be muted," McPherson said.  

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