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Capital One (COF) Plans to Test 'Buy-Now Pay-Later' Service

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At a Barclays investor conference, Capital One’s (COF - Free Report) CEO Richard Fairbank said that the company will beta test a buy-now pay-later (BNPL) service later this year. He further stated that the product will be tested with some of the existing customers at “select set of merchants” and it won’t be linked to the company’s private-label credit-card business.

The BNPL service allows customers to split up their purchase and pay it off over time mostly without paying interest. Capital One intends to use the test results to understand the product better, and how it can be attractive to merchants and clients.

It must be noted that in December 2020, Capital One had banned the use of BNPL for its credit card users. The move was attributed to risks related to these types of services. So, you must be wondering what has changed between then and now?

Well, there has been a surge in popularity for such services among the customers driven by the support from venture capitalists and the readiness of merchants to subsidize interest costs. Per a report from Allied Market Research, the global BNPL market is expected to hit $3.9 trillion by 2030, witnessing a 10-year CAGR of 45.7%.

The providers of BNPL services including Affirm Holdings Inc. (AFRM - Free Report) , AfterPay Ltd., and PayPal Holdings (PYPL - Free Report) have witnessed a rise in volumes that was partly driven by an increase in online shopping amid the coronavirus pandemic. Further, Square Inc. (SQ - Free Report) is planning to join this booming service with its agreement to acquire AfterPay, while PayPal intends to solidify its position by signing a deal to buy Paidy, a Japan-based BNLP solution provider.

Thus, Capital One is facing tough competition for consumer loans from Fintechs that are offering merchants easy ways to offer cheap financing for purchases. Fairbank added, “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.”

Shares of Capital One have jumped 60.8% so far this year, outperforming the industry’s rise of 44.8%.
 

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Currently, Capital One carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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