Original text here from Patrice Bernard (LinkedIn)
Likely driven by the immense popularity of Buy Now, Pay Later (BNPL) schemes, a minor revolution is unfolding in the credit card realm: American Express is introducing, currently only in the United Kingdom, an option for cardholders to convert a portion of their outstanding debt into a traditional loan.
Without any changes or impacts on their existing contracts, the brand's customers can now opt to settle purchases recorded on their account through a plan of 3, 6, or 12 fixed monthly installments. This option is available at any time via the mobile app and AmEx's online service platform, for a specific expense or for a portion (up to a maximum of 85%) of their total commitment, as shown on their latest statement.
In a manner fully integrated with the company's traditional model, the planned repayments are (logically, indeed) deducted from the minimum payment required each month, while the transactions remain eligible for the usual reward programs that contribute to its appeal.
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Utilizing the "Plan It" feature does not accrue interest but is subject to a fixed fee. The cost appears relatively high but is likely in line with current practices in its category. As a result, the financial benefit compared to "normal" credit card use is limited, and it is thus the predictability of the (stable) payments that is likely to appeal to consumers.
Naturally, American Express is not the first legacy player to feel the pressure from new financing techniques, including BNPL and its variants, and to adapt its offering in response to their growing hold on the market. And, like others in its situation, it has the means to occupy a privileged position in the landscape thanks to the unparalleled flexibility of its solutions, allowing a free choice between three payment modes with a single instrument.
However, such evolution could penalize the company's business model. Not particularly because of the slightly lower price of the "Plan It" option, but mainly because the strategy of credit card leaders consists of encouraging clients to maintain a debit balance on which interest accumulates over a long period, rather than aiming for planned repayment.
From this perspective, by prompting AmEx and its peers to deploy somewhat more virtuous tools that might steer user behavior towards better anticipation and more control, the BNPL upstarts could, despite their own shortcomings in this regard, indirectly advance the financial well-being of populations. This is excellent news!
