A major disruptor over the past several years, the increasingly popular purchase option is challenging the credit card model.
Buy now pay later (BNPL) arrangements allow consumers to buy and receive goods and services immediately but pay for that purchase over time.
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Especially popular with younger shoppers, BNPL services are quickly taking the place of credit cards for many consumers.
These schemes can be viable solutions when budget is tight, helping to prepare for things such as weddings, holidays or job interviews.
They can take the stress out of busy spending periods, like Christmas, and in some cases can even be used to pay bills.
Variety, flexibility, and risk
Unlike credit or debit cards, signing up is a quick and easy process that can be done online, and often doesn’t require many conditions other than being over the age of 18.
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By GlobalDataEach provider of the service offers slightly different variations of the same concept, varying in account credit limits, flexibility of payment schedules, service fees and late fees.
Customers should carefully note all the terms and conditions that come with each service, to avoid being hit with any unexpected fees.
For customers who manage their finances well, BNPL can be a good interest-free alternative to credit cards and can help to avoid credit card debt.
However, it’s also important to consider the risks of these services. People are more likely to buy more than they usually would and overspend because they have the option of breaking up the payment.
In an unfavourable scenario, BNPL can have an impact on a customer’s financial future, with excessive purchases and late payments affecting credit scores and the ability to secure loans in the future.
The BNPL space is dominated by a few major players, including Klarna from Sweden, Laybuy from New Zealand and ClearPay from Australia.
Credit card issuers are paying attention
The rising popularity of BNPL scheme is no lost on credit card companies.
American Express (Amex) has introduced BNPL options for its card holders. Platinum card holders can now join Green and Gold members with Amex’s BNPL arrangement, dubbed Pay It Plan It.
The feature allows cardholders to create monthly payment plans with a fixed monthly fee of up to 1.33% and no interest, carry a monthly balance with interest, or pay their bill in full.
Visa will not be outdone. Paying in instalments or having the option to pay in a set number of equal payments for something at the point-of-sale, is the latest convenience offered by Visa and welcomed by a majority of U.S. millennials.
“Visa’s instalment solutions are becoming a key element of Visa’s strategy to help our clients and partners give eligible consumers more flexibility to pay by simply using their existing Visa credit cards at checkout,” the company said.
Instalments are attractive to sellers, Visa said, with many seeing an increase in average ticket size and average conversion rate when instalments are available as a payment option at checkout.
Mastercard said its Instalment Payments Services offers its cardholders endless opportunities: “let them buy what they want, when they want, and how they want.”
The New York-based company said the service lets cardholders break the cost of big purchases into bite-size monthly chunks.
