Card-linked BNPL: How it works and why it appeals to banks and PSPs

Over the past decade, the buy now pay later (BNPL) market has seen exponential growth, projected to rise from US$266 billion in 2021 to US$995 billion in 2026 according to Juniper Research, and driven by fintechs like Klarna. This has given rise to a variety of BNPL models, one of which is card-linked BNPL. But what exactly is this model? How does it operate and why is it particularly appealing to banks and PSPs?

A model perfectly suited to consumer banks and PSPs

Card-linked BNPL enables customers to pay for purchases in-store, online or in-app using a BNPL payment card. This model can typically be offered in three ways:

• Before purchase: Providers issue a BNPL card for single or multiple purchases in advance
• During purchase: Providers issue a virtual BNPL card at the point of sale, often with an extended credit line to encourage further spending
• After purchase: Providers flag eligible purchases already made so the customer can then convert these transactions into instalment plans at which point the purchase amount is returned to the customer’s account by the BNPL provider

According to a recent PYMNTS study, 28.1% of Gen Zers said BNPL plans were their top choice for everyday purchases, with 42.7% preferring card-link plans. It's a similar story for millennials, of which 33% said BNPL was their top choice with 33.3% of them preferring card-linked solutions. Based on these consumer preferences, there is a clear opportunity for both banks and PSPs to integrate card-linked BNPL into their offerings. Banks and fintechs such as Monzo, Klarna, Revolut, and Affirm have seen the growing popularity of this model and successfully introduced their own card-linked BNPL offerings, delivering BNPL services within their existing card products.

How does card-linked BNPL work?

The way a payment is processed can vary depending on the point at which the BNPL card is requested. Here is a closer look at the differences:

Before/during purchase

1. Account setup and card issuance: Once the customers account is set up with the associate BNPL provider, they can apply for a BNPL card. The card issuer may perform credit checks before card issuance. After approval, the card is issued to the customer (virtually or physically)
2. Initial purchase: The customer selects the items they wish to purchase and uses the BNPL card to make the purchase
3. Choosing an instalment plan: The customer selects an instalment plan tailored to their preferences
4. Transaction completion: The customer's repayment cycle begins according to the chosen plan, with payments made directly to the BNPL provider

After purchase

After purchase card-linked BNPL occurs the same way as before/during purchase, with the added flexibility for customers to convert past purchases into instalment plans. The BNPL provider can flag eligible transactions, allowing customers to choose whether to turn them into an instalment plan. Once a plan is chosen, the total amount of the purchase is reimbursed to the customer, and the repayment cycle begins.

Card-linked BNPL is just one of many innovative models transforming the BNPL landscape. Its potential to be implemented swiftly within a bank’s or PSP’s existing offering makes it an attractive option for those looking to expand their services. However, this is only one piece of the puzzle. Numerous other BNPL models exist, each offering unique benefits tailored to different business needs. To explore these options and determine the best fit for your business, be sure to check out our ultimate guide to BNPL.

Other blogs in this series: Merchant-funded BNPL | At-purchase off-card BNPL | Post-purchase off-card BNPL