A Big Bank Is Launching Its Own Buy-Now-Pay-Later Service

U.S. Bank is launching a buy-now-pay-later (BNPL) service called U.S. Bank Avvance, which is designed to offer quick installment loan options for customers at merchants' checkout pages.

From a consumer's perspective, Avvance loans offer little- or no-interest financing depending on the borrower's credit profile, and it allows customers to check their loan options without a hard credit pull, similar to how many personal loan companies operate. They can choose from a variety of repayment terms, which can vary from three to 60 months, and there are no hidden fees associated with the service. When checking out at merchants that offer the service, an Avvance button will appear on the checkout page.

This is one of the first BNPL platforms offered by a large national bank and is designed as an alternative to existing platforms like Affirm, Klarna, and Afterpay. The idea is that U.S. Bank will leverage its existing relationships with merchants, as well as its long history of responsible and profitable lending, to grow the service in a way that is sustainable for the bank and a solid alternative to borrowing with credit cards for consumers.

Why is U.S. Bank getting into the BNPL business?

It's not difficult to see why U.S. Bank is entering the BNPL space. While there are some large fintech startups offering these services, such as the three mentioned above, there's a notable lack of competition when it comes to large and reputable banks offering point-of-sale lending and BNPL products.

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BNPL options are clearly resonating with consumers. According to Federal Reserve data, 19% of consumers report having used a BNPL loan within the past year. And U.S. Bank could be a big beneficiary if some of the other 81% would feel more comfortable using a BNPL platform backed by a bank they know and trust.

Should you use BNPL for purchases?

Like with most financial products, the short answer is "it depends." For example, if you need to pay for an emergency home repair for $10,000 and you have a choice between maxing out a credit card at 24% interest, getting a personal loan at 15% interest, or using BNPL financing at say, 8%, it can be an easy decision to save on interest. And that's especially true if the BNPL platform offers you 0% APR financing.

On the other hand, there are some cautions to keep in mind. Where consumers tend to run into trouble is using BNPL services to pay for everyday purchases and accumulating several different BNPL installment loans at a time or stacking BNPL payments on top of other types of debt. According to a CFPB survey, nearly 70% of people with a BNPL loan also carry a balance on at least one credit card and also have higher credit utilization than people who don't use BNPL services.

In short, BNPL services like Avvance certainly fill an important need. They provide access to money quickly when needed, which can be very handy, especially for a large purchase or unexpected expense. But just like credit cards, it's important to use BNPL loans responsibly.