How Banks Can Effectively Compete with BNPL Platforms

Every time a cardholder chooses BNPL instead of their credit card, banks lose visibility into purchase behavior, transaction data flows to third parties, and customers begin building separate financial relationships outside the bank’s ecosystem. BNPL platforms have reached an estimated $342 billion in the global BNPL markets of gross merchandise volume (GMV) in 2024.

The scale of this shift creates urgent pressure for banks to respond. Millions of merchants use BNPL, with major providers like Klarna serving 700,000 globally, positioning themselves as the default installment option at checkout. 

The threat of BNPL on banks

Traditional BNPL platforms fundamentally disrupt the traditional banking relationship at the most critical moment: the point of purchase. When customers choose another BNPL provider instead of their credit card, banks lose more than a single transaction. They lose the compound value of customer data, purchase insights, and the opportunity to deepen financial relationships through repeated engagement.

A 2023 McKinsey report estimated that BNPL fintechs had already taken $8 billion to $10 billion in annual revenue from banks, with $150 billion in BNPL loans expected to originate in the US alone in 2025. The business model that powers BNPL success directly conflicts with how banks operate. Traditional BNPL providers originate new loans for each purchase, accepting default risk in exchange for merchant fees and consumer interest. They build customer acquisition into every transaction, converting each checkout into a data collection opportunity. This approach works for venture-backed platforms prioritizing growth over profitability, but it creates fundamental problems for regulated financial institutions.

Customers expect payment flexibility at checkout, merchants demand solutions that drive conversion, yet the traditional BNPL model requires infrastructure that banks weren’t designed to deploy. Building loan origination systems for point-of-sale lending, managing collections on thousands of small-dollar accounts, and competing with platforms that subsidize growth through investor capital, these activities pull banks away from their core strengths while exposing them to operational complexity and regulatory scrutiny.

Banks experience a parallel displacement; they hold the credit card account, but BNPL providers own the purchase relationship. This displacement accelerates as customers with $35,000 in available credit card limits increasingly bypass those cards in favor of installment options, not because they lack funds but because they prefer payment flexibility.

Card-linked installments: The strategic alternative to BNPL lending

Card-linked installments solve the bank’s competitive problem without requiring a fundamental business model shift. Instead of originating new loans, this approach activates existing credit card capacity through structured installment plans. Customers use the credit they already have, banks receive guaranteed payment through pre-authorization, and the entire transaction operates within current card network regulations.

A customer makes a purchase and selects installment payments at checkout. Rather than applying for a new loan, they simply enter their credit card information. The full purchase amount gets pre-authorized against their available credit limit, securing the bank’s position, while the customer pays in scheduled monthly installments processed through standard card transactions. No application, no credit check, no new account.

This model delivers payment flexibility without creating the operational complexity that BNPL lending requires. Banks don’t need new underwriting systems because they’re not making lending decisions at checkout. They don’t need collections infrastructure for defaulted accounts because pre-authorization guarantees payment. They don’t need to build merchant acquisition teams because these payment solutions integrate through existing card network relationships.

Splitit’s recent partnership with DXC Technology demonstrates how this approach scales through existing bank infrastructure. Rather than requiring banks to build new systems from scratch, the solution integrates with core banking platforms that financial institutions already use. Banks work with their existing service providers to configure installment offerings, determining eligibility criteria, setting plan durations and fees, and customizing the customer experience, without major technical expenditure.

Payment solutions for financial institutions built on card-linked technology also preserve the economics banks understand. Interchange revenue continues flowing from each installment payment. Processing fees follow standard card transaction models. Risk management stays within existing credit card loss mitigation rather than requiring separate BNPL lending risk models. Banks compete for checkout transactions using infrastructure they’ve already built and perfected.

How card-linked installments let banks compete on their own terms

Card-linked installments transform competitive disadvantage into strategic advantage by leveraging what banks already do well rather than forcing them to replicate what BNPL platforms do differently. Banks hold relationships with millions of cardholders, operate within established networks, and understand credit risk management. Card-linked approaches activate these existing strengths instead of requiring banks to build unfamiliar lending operations.

Banks have historically struggled with one-to-one merchant integrations, requiring separate technical implementations for each retail partner. Splitit’s card-linked installment platform addresses this through a single API that connects banks to multiple merchant endpoints: wallets, marketplaces, e-commerce platforms, payment processors, and point-of-sale systems. Banks gain access to broad merchant acceptance without negotiating individual integrations, while merchants add bank-backed installments without complex technical work.

The omnichannel capability extends competitive reach beyond e-commerce. Card-linked installments work identically online, in-store, and over the phone, using the same integration and processing rails. Banks offer merchants a single solution across all channels rather than requiring separate BNPL implementations for digital versus physical retail.

Protecting customer relationships without third-party interference

The white-label nature of card-linked installments preserves what banks lose when customers choose traditional BNPL: direct relationship control. Splitit’s card-linked approach keeps banks in the primary relationship position while delivering the payment flexibility that customers want.

When a customer uses a BNPL competitor, they see the brand at checkout, receive communications from the BNPL platform, and interact with a third party for payment management. The bank becomes invisible in the transaction despite providing the credit that funds the purchase. Card-linked installments invert this dynamic; customers use their bank-issued credit card, see their bank’s brand, and maintain their existing banking relationship throughout the installment period.

Banks processing card-linked installment transactions maintain full visibility into purchase behavior, transaction patterns, and customer spending across all merchants. This data feeds into existing risk models, rewards programs, and customer intelligence systems rather than flowing to third-party platforms that use it to build competing services.

Repeat purchase behavior demonstrates relationship value over time. When customers use card-linked installments successfully, they return to use the same payment method for future purchases. This repeat engagement happens within the bank’s ecosystem rather than building loyalty to a BNPL platform. Banks measure success not just in individual transaction capture but in long-term customer retention as cardholders recognize that their existing credit card provides the flexibility they need.