The Battle of Payment Methods: Buy Now, Pay Later vs Credit Cards

The Emergence of BNPL

Buy Now, Pay Later (BNPL) services have gained popularity among consumers, with companies like Klarna, Affirm, and Afterpay allowing shoppers to break purchases into predictable, often interest-free instalments. The COVID-19 pandemic accelerated BNPL adoption, as a report by C+R Research revealed that 51% of consumers used BNPL during this period, benefiting from the surge in online shopping and its convenience.

The Credit Card Conundrum

Credit cards are well-established financing tools, widely accepted and trusted. However, credit card balances can accumulate over time, burdening users. The C+R Research report found that 38% of respondents planned to replace their credit cards with BNPL services.

Comparing BNPL and Credit Cards

BNPL services offer predictability and zero-interest policies, while credit cards come with rewards and payment histories useful for credit bureaus. NerdWallet highlights that even credit card issuers have begun offering their BNPL-style options.

Credit cards issued by financial institutions and banks allow consumers to purchase goods and services on credit, with repayment subject to variable interest rates. In contrast, BNPL services offer instant credit, with lower or no interest rates, provided by banks and digital payment apps.

The C+R Research report found that 45% of respondents thought BNPL was easier to use than credit cards, while 44% believed it was more flexible. However, BNPL options may be limited to specific merchants or purchases.

Evaluating Costs

BNPL services, particularly those without interest fees, can provide consumers with free financing. In such cases, BNPL providers rely on merchant fees, similar to the interchange fees payment networks charge for credit card transactions. For longer-term loans, BNPL services may include interest rates akin to traditional loans. The main advantage of BNPL services is the lack of required credit checks, ensuring faster financing access.

Credit cards necessitate credit checks, with those with poor credit scores often struggling to access them. Credit card fees can change and are generally higher, but if users repay their bills on time, they can avoid interest charges.

Adapting to BNPL's Rise

As BNPL usage increases, credit card issuers and payment networks must adapt to remain relevant. Many have introduced their predictable payment options for specific purchases, such as:

- Mastercard Installments

- My Chase Plan

- Plan It by American Express

- Citi Flex Pay

The competition between BNPL services and credit cards has intensified, with each payment method offering unique advantages. As consumers seek flexible, convenient payment options, the industry must evolve to cater to these changing preferences.