The FT recently reported that big banks are racing to keep pace with fintech startups in the rapidly growing arena of deferred payment solutions, such as Buy Now Pay Later (BNPL) services.
This shift highlights a broader trend where traditional financial institutions are being challenged by more tech-savvy (and mostly younger) newcomers that are reshaping consumer finance.
As fintechs like Klarna, Afterpay, and Affirm have gained significant traction by offering flexible payment options that appeal to younger, digitally savvy consumers, big banks are now scrambling to integrate similar offerings into their portfolios to protect their profitable credit card divisions.
The rise of BNPL reflects a significant evolution in how people approach spending.
Unlike traditional credit cards (although banks like Bank of America and many others now offer 0% APR on many cards now for up to 18 months to compete), which often come with high interest rates and complex terms, fintech-powered deferred payment plans allow consumers to split purchases into interest-free installments, typically with minimal or no fees.
This model has cut into the dominance of bank-issued credit cards, prompting institutions like JPMorgan Chase, Citigroup, and Goldman Sachs to launch or expand their own BNPL products. And they actually have done so in a meaningful manner. Interestingly, these innovations are making service providers work harder to gain customers which is better for consumers as it allows them to access significantly better lending services and loans as well.
For example, Citi introduced its “Flex Pay” service, while Goldman Sachs has partnered with firms like Apple in order to embed deferred payment options into digital ecosystems.
Fintech startups have a head start or first-mover advantage, leveraging their agility and technology-first approach.
Companies like Klarna, valued at over $30 billion in its latest funding rounds, have built sleek, user-friendly platforms that integrate seamlessly with e-commerce sites.
Afterpay, acquired by Block (formerly Square) for $29 billion in 2021, boasts millions of users across the globe.
These firms use data analytics and AI to assess credit risk instantly, often bypassing the lengthy approval processes of traditional banks.
In contrast, big banks, burdened by outdated / legacy systems and stricter regulatory oversight, have been slower to adapt to these Fintech innovations, though their vast resources and customer bases give them potential to catch up.
The competitive landscape is intensifying. Due to these innovations, consumers who shop responsibly will undoubtedly benefit. But people who go beyond their budget will continue to struggle and may get into serious debt traps.
It’s also worth noting that while fintechs currently dominate the BNPL space—projected to reach $1 trillion in transaction volume by 2030, according to some estimates—banks are countering with their own advantages, such as established trust and deeper financial reserves.
JPMorgan, for instance, rolled out its “Chase Pay in 4” option, aiming to retain customers within its ecosystem.
However, banks face challenges in matching the speed and innovation of startups unencumbered by old and clunky infrastructure.
Consumer demand is driving this transformative shift.
Millennials and Gen Z, wary of debt traps, often tend to prefer BNPL’s transparency and flexibility over traditional credit. However, even more traditional credit card services are being revamped with much clearer terms and conditions presented to the client so that they know exactly the type of offer they may be accepting.
Yet, risks loom: regulators in the U.S. and Europe are scrutinizing BNPL for potential overextension of credit, and rising interest rates could squeeze the model’s viability.
For major banking institutions, the stakes are actually quite high—credit card revenue, a $100 billion-plus market in the U.S. alone, is potentially under threat.
As fintechs continue to disrupt the digital financial services and flexible payments product offerings, big banks must carefully balance innovation with stability, while hoping to evolve without losing their core strengths.