BNPL vs Credit Cards

Buy Now, Pay Later (BNPL) has become a popular payment method among shoppers. Promoted by companies such as Klarna, Affirm, and Afterpay, BNPL allows consumers to make purchases by breaking them into predictable installments. What draws people in is the fact that these installments often come interest-free. But how do they fare when compared to credit cards?

BNPL on the rise

According to a report released by C+R Research , 51% of consumers used BNPL during the pandemic, which is a clear indication that COVID-19 helped BNPL to rise to fame. Apparently, the payment method benefited from the surge in online shopping and by promoting convenience.

Credit cards

On the other hand, we have credit cards, which are trusted financing tools. Also, consumers can buy via credit cards almost anywhere. However, credit card balances increase over time, until the card owner pays off the debt.?According to the same report cited earlier , 38% of respondents said that they will replace credit cards with BNPL.

The face-off

On the one hand, we have BNPL with its predictability and zero-interest policy, while on the other hand, we have a longstanding champion, credit cards, which come with rewards and payment history which can come in handy with credit bureaus.?According to NerdWallet , even card issuers begin to offer their own remix of BNPL.

Credit cards are issued by financial institutions and banks and are used to buy goods and services on credit. They come with various conditions and consumers have to pay back the credit amount plus various interest rates.

BNPL operates on instant credit and it is provided by banks and digital payment apps. As opposed to credit cards, BNPL comes with lower or no interest rates.

Going back to the C+R Research report, 45% of respondents thought that BNPL is easier to pay with, compared with credit cards, while 44% believed that it is also more flexible. However, it can happen that BNPL options can be found only with specific merchants and only on specific purchases.

Costs

As stated before, BNPL comes with or without interest fees, which makes the latter a form of free financing for the consumer. In this case, BNPL providers bank on merchant fees similar to how payment networks make money on interchange fees in the case of credit cards.

For loans made on longer terms, BNPL usually comes with interest rates, similar to traditional loans. What makes BNPL stand out here is that it doesn’t require credit checks when a shopper tries to use it, meaning that access to financing is faster.

Credit cards are always issued only after consumers are credit-checked. Those with bad credit scores might have trouble with credit cards. Also, when using a credit card, it’s important to know that the fees can change and they often tend to be on the high side of the spectrum. However, if consumers manage to pay the bill in time, then they will owe no interest.

How do credit card issuers adapt?

With the rise in BNPL usage, credit card issuers and payment networks had to find ways to remain relevant. One way they did that is by offering their perspective on predictable payments for specific purchases. To name a few:

· Mastercard installments

· My Chase Plan

· Plan it by American Express

· Citi Flex Pay