Capital One Testing Buy-Now, Pay-Later Option to Battle Affirm

Jenny Surane
Mon, September 13, 2021



(Bloomberg) -- Capital One Financial Corp. will test a new buy-now, pay-later service as consumers flock to the options that let them split up a purchase and pay it off over time.

The company will begin beta testing the product with some of its existing customers at select merchants later this year, Chief Executive Officer Richard Fairbank said Monday at an investor conference. He declined to share more beyond saying the new offering wouldn’t be linked to the firm’s private-label credit-card business.

Buy-now, pay-later options -- with names such as Afterpay Ltd. and Affirm Holdings Inc. -- have swelled in popularity in recent years, especially among younger consumers looking to pay off purchases over time and often without interest. The offerings make most of their money by charging merchants a fee each time a consumers uses the product at checkout.

“We’re watching this product closely and certainly not taking this growth lightly, especially as many of these buy-now, pay-later providers form new financial relationships with a large number of consumers and merchants,” Fairbank said.

Capital One has been eyeing ways to juice loan growth in recent months. The McLean, Virginia-based firm has spent more on marketing in an effort to add new customers and has begun gradually increasing credit lines for existing clients. The lender’s latest move in the buy-now, pay-later business marks a bit of a reversal, though: last year, it barred customers from using Capital One credit cards for buy-now, pay-later options.

“Competitors are amassing at the border, and it’s possible they will bid down the level of the merchant discount,” Fairbank said. “As there is a drop in margins, it could alter how the business works -- who pays for the loans, and which customers ultimately choose the product.”

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