John San Filippo
Move Over Klarna and Sezzle, Here Come Credit Unions
Fintech startup equipifi helps CUs enter the lucrative BNPL market.
By John San Filippo
“Buy now, pay later” (BNPL) is taking the consumer market by storm. For anyone unfamiliar with the term, BNPL is simply a credit product that allows a consumer to split a single purchase into several payments that are automatically charged to the consumers debit or credit card. It’s like an old-fashioned lay-away plan, except the consumer gets their merchandise now. And while you may have heard of names like Klarna, Sezzle, Affirm and Afterpay, there are literally dozens of other companies trying to carve out their own space in the BNPL market.
Unfortunately, every BNPL transaction is a missed opportunity for credit unions, or at least it was until now. Enter equipifi, a fintech startup whose sole purpose is to help community financial institutions compete in the BNPL space.
Credit Union Roots
From 2012 to 2019, equipifi co-founder and CEO Bryce Deeney worked for a fintech company in Arizona that focused on payments. However, when the company was acquired in 2019, he knew it was time to move on. He applied for positions at Klarna and a few other fintechs, but decided to explore an opportunity at Alaska USA Federal Credit Union almost as an afterthought.
“Honestly, I took the interview with Alaska USA because I really wanted to go up to Anchorage. I had never been to Alaska before,” admitted Deeney. “But then when I went up to meet with Geoff (Lundfelt, CEO) and Elizabeth (Pavlas, COO) and their core team, and really learned their mission and what they wanted to solve for, I kind of fell in love with the culture – not only of Alaska USA, but of credit unions in general.”
Deeney accepted the position of vice president of payments with Alaska USA, but he didn’t need to relocate from the Scottsdale, Ariz., area. “Alaska USA actually has a pretty big presence here in Arizona, including their data center and an operations center with a couple of hundred employees,” he said.
“When the pandemic started, I began looking at our membership interaction with Klarna, Affirm and Afterpay. I saw that we had thousands of members using these technologies month in, month out. And the number was like tripling overnight,” he told Finopotamus. “I was trying to figure out, what technology provider could I go sign a contract with to bring this technology in so we could offer it to our members, but there wasn’t any.”
Deeney said that at first, he seemed to be the only credit union executive who saw the opportunity in BNPL. “I was the only one I knew who was clamoring for something because it was new and innovative,” he said. “Then six months later, a lot of other credit unions started coming to me and saying, well, now we see it. That's when I realized, okay, I can't find a good product out in the market that we can adopt, so I just need to build it.”
The Member Experience
“Let’s say you use your credit union debit card to make a $200 purchase at Target,” explained Deeney. “We're integrated into the authorization stream. So, within a few seconds of you making that purchase, you receive a push notification through mobile banking saying your transaction qualifies for a payment plan, click here to learn more.” He said that if the member accepts the BNPL offer, the funds for that purchase can be credited back to their checking account by the time they’ve left the store. “The process takes about 45 seconds,” he added.
One drawback to this scenario, Deeney conceded, is that the member initially needs to have the funds available in their checking account to make the purchase. Finopotamus asked whether and how equipifi intends to address this.
“With buy now, pay later, there are really three deliverable methods,” said Deeney. “What we're doing now with our first product is that post-purchase deliverable. Our second product will be a pre-purchase deliverable. We’ll be spinning up a one-time-use Visa or MasterCard debit card, like a prepaid card.”
Deeney said that the third iteration of the equipifi BNPL solution will involve direct integration at the point of sale (POS). “You’ll just tap your card at the point of sale and then the POS screen will ask you whether you want to split this up over, say, six months.”
Under the Hood
It’s what goes on behind the scenes that makes the process seem so fast to the member, noted Deeney. “Before you even use your card to shop, data is being decisioned by our platform,” he continued. “We're looking at you as a member. Do you have the ability to repay a $200 plan? By the time you're swiping your card or buying something online with your credit union debit card, you are already approved for this type of plan offering.”
As payment is made, the equipifi system is also verifying that the transaction qualifies for BNPL based on the credit union’s risk standards. For example, it’s unlikely that any credit union would offer BNPL on a loan payment. “We’re blacklisting, certain MCCs (merchant category codes) for the financial institution.” Said Deeney.
According to Deeney, the equipifi system requires a simple single sign-on (SSO) for mobile banking integration. He said his company has already completed such an integration with Q2.
“The heavy lifting is with the credit union’s core processor – the Symitars and Corelations of the world,” said Deeney, “because we actually create a new loan on the core.” He claimed that equipifi has already built the integration to Symitar’s Episys and is now working on an integration to Corelation’s KeyStone.
“We're also working with institutions that are on multiple Fiserv cores and a few FIS cores, as well,” said Deeney. “We need the ability to read the data and then also the ability to write back those loans in real time.” He added that the company has no immediate plans to charge customers for any required integration work, such as for integration to a new core.
“It’s really all about having relevant credit products for the younger generations – ones they’re already using today,” said Deeney. “How do credit unions capture some of that market and at the same time increase their consumer lending portfolio?” He noted that while debit card usage has “skyrocketed,” credit card usage is declining.
“If a credit union can get 2 to 3% of their membership to adopt our platform, it becomes a very profitable offering not only because of the fees, but because you’re turning a debit card power user into a member who can self-manage credit on top of that card, which in turn puts more money in their checking account so they can use their debit card even more.”