Chase Just Axed A Customer Favorite Perk – Here's Why Their 'Strategic' Move Is Ruffling Feathers Among Account Holders

JPMorgan Chase Bank has informed customers that, as of 10 October 2024, it will no longer allow its credit cards to be used to pay for Buy Now, Pay Later (BNPL) services by third-party providers such as Affirm, Klarna, and Afterpay. The move has surprised many of its credit card holders, who appreciate the flexibility and ease of BNPL plans.

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BNPL services have increased in popularity. By fall 2023, 9% of consumers were using BNPL plans, which let customers split purchases into smaller, interest-free payments. Typically, customers pay 25% upfront and then pay off the rest in specified interest-free installments, generally over a few weeks. Some BNPL plans offer even more extended payment periods. Most plans are very attractive since they don’t charge interest or fees and, in most cases, are approved quickly and easily.

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BNPL offers an attractive way to keep tabs on spending without interest. Customers can avoid interest by paying BNPL plans using a credit card and even rack up rewards points. That will no longer be allowed under Chase’s new policy. 

Banks generally do not let customers pay debts with credit cards, says David Shipper, strategic advisor to Datos Insights. “Since BNPL products are indebted, paying them with a credit card is akin to paying for a mortgage or car loan with a credit card, which generally is not allowed or, at the very least, certainly frowned upon,” he says.

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The Chase decision aligns with a broader trend by credit card issuers. Last year, Capital One banned its credit cards from BNPL transactions, citing the risks involved. However, most issuers still allow BNPL payments and offer the companies their own BNPL services. Chase offers My Chase Plan, while American Express does through Plan It and Citi through Flex Pay.

From all indications, this seems to be a move to drive customers toward Chase’s BNPL service, My Chase Plan. Cassandra Happe, communications manager at WalletHub, suggests this move has been strategic. “Chase’s decision is designed to steer customers toward Chase’s own BNPL service. Doing this will help Chase capture all of the transaction fees and interest and better control the customer data and spending behaviors, which will strengthen Chase’s competitive position,” says Happe.

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Recent surveys underline the dangers BNPL services pose. In a recent Harris Poll for Bloomberg News survey, 43% of BNPL users fell behind in payments, with 28% indicating that the BNPL loans contributed to falling behind in payments elsewhere. 

The value proposition is simple: Instead of paying the full amount upfront, BNPL slices up the bill into manageable payments, which opens up products to consumers who otherwise wouldn’t be able to afford them.

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The downside is that failure to pay can drive consumers deeper into debt. Chase is aiming to protect its customers from this risk. It’s also trying to prevent them from using third-party BNPL services by blocking the use of Chase credit cards for those transactions.

Chase is certainly not alone. With BNPL continuing to surge, more credit card issuers may hop on board, especially those with their own BNPL offerings. For their part, American Express and Citi will continue to allow their customers to use credit cards for third-party BNPL plans. That could be reconsidered going forward as these companies re-evaluate the risks against benefits.

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