Inside Citi Pay’s strategy to take over BNPL

As more shoppers look to finance online purchases using buy now, pay later programs, legacy financial institutions like Citi are increasingly tapping into the space.
Citi Pay initially launched as a point-of-sale financing service in the fall of 2023. But company executives say they are increasingly investing in the offerings and looking to scale the product.
“We wouldn’t move into this category if we didn’t have that level of confidence in our ability to be successful,” said Terry O’Neil, head of connected commerce at Citi Retail Services. “We are very confident that we can take a number one or number two position in the space.”
Citi Pay currently offers BNPL-style installment loans and lines of credit at around 195 merchants, including shipping service Pods and electronics and appliances company LG. So far, sales are growing by at least 20% each month, the company shared with Modern Retail.
Citi’s fourth-quarter earnings results, posted earlier this month, show that its retail services division generated $1.8 billion in revenue in the fourth quarter of 2024, an increase of 7% year over year. CEO Jane Fraser said on the earnings call that the division will be “forensically focused on improving the partnership economics and driving top-line growth.”
From an industry perspective, Citi’s play is looking to get a share of a growing market. The Consumer Financial Protection Bureau in mid-January put out a report that said 21.2% of shoppers have used BNPL, up from 17.6% in 2021. About one in five were considered “heavy” users, using the services an average of 9.5 times a month. The services are showing up in more places online and in-person, like travel websites, auto repair shops and elective health services. This past holiday season, BNPL generated a record $18.2 billion in online spend, according to Adobe.
Yet the space comes with risks, especially for lower-income consumers who may be using a deferred payment product in order to buy something they can’t truly afford. The CFPB found that nearly two-thirds of BNPL loans went to peers with subprime or lower credit scores and those who were more likely to hold higher balances on other credit cards or loans.
Against this backdrop, O’Neil said Citi sees a role for its products given its experience working with merchants as a payment processor — and because consumers see it as a familiar brand. He said the company did extensive research to figure out whether to put out its services as private label or use the Citi brand.
“When we’ve done in-situation testing, which is essentially putting the Citi Pay logo next to our competitive cohort, we have seen overwhelmingly that consumers gravitate towards Citi,” O’Neil said.
The installment loans can be $500 to $20,000 and split into 6 to 60 months of payments, with interest rates ranging from 0% to 12.99%, depending on the merchant and customer profile. O’Neil also said the product doesn’t use affinity marketing or customer monetization, meaning customers who use Citi Pay won’t have their data sold elsewhere.
O’Neil said Citi Pay is growing because it markets to customers at different points in the customer journey to show them what they can afford, like a $39 monthly installment for 12 months. This is particularly useful for higher-priced items or unexpected purchases. Citi Pay also offers “payment estimators” as part of the process, letting people know how much they can afford before buying.
“Most consumers aren’t thinking about the cost of a dishwasher, they’re thinking about how that dishwasher can fit into their budget,” he said. “So what they’re starting and have been demanding from merchants and issuers alike is to show them how they can fit that purchase into their monthly budget.”
Ben Marks, director of global market development at e-commerce platform Shopware, said brands are increasingly looking to personalize payment offerings to customers. That could mean more BNPL advertising on a product description page or having alternatives to credit. But Marks said the key for brands is to simplify the experience and remove as much friction from checkout as possible.
“When it comes to payment options, some shoppers come in already knowing that they want to use Affirm or Klarna,” Marks said “But merchants don’t want to overwhelm them with a laundry list of 18 BNPL vendors to choose from.”
Donna Sharp, the managing director at marketing consultancy MediaLink, said some banks may better assess lending decisions than startups, given their experience and data on spending habits.
“My bank is going to know a lot more about my financial stability,” she said. “There’s some real upside and opportunity for banks.”