Credit Card vs BNPL: A Brief Comparison
The rise in digital payments has prompted people to resort to the buy-now-pay-later (BNPL) model to meet their daily needs. The growing acceptance of the BNPL model is due to several factors which include easy access to a credit line, easy payment and repayment options, rewards and much more.
Even though the financial year ends on March 31, taxpayers make their last effort to take advantage of tax exemptions and exemptions, which usually involve big ticket payments in the form of investments and insurance, thus disrupting the monthly budget. In doing so, BNPL has arrived. To their rescue to help them meet their daily family needs.
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BNPL is emerging as a powerful tool for middle class or lower-middle class as it is seen as an alternative to savings, credit card payments. Individuals with limited credit options are also adopting it, reflecting a growing payment trend, as Indians, especially younger consumers, are increasingly opting for the solution for its convenience, accessibility and affordability.
The success of BNPL has led to its introduction in new formats like cards. BNPL cards are prepaid instruments with a credit line attached. It expands the line of credit available to consumers beyond online platforms to include offline, point-of-sale touchpoints as well. Currently, BNPL players like LazyPay, Slice and Uni offer the facility of cards to reduce the payment complexities for their consumers. LazyPay recently introduced LazyCard, a prepaid payment instrument backed by a line of credit and built with a robust rewards structure, which creates value for customers in every transaction by offering cashback rewards.
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Anoop Agarwal, Business Head, LazyPay, said on using BNPL, “BNPL is an important financial instrument for young consumers who do not have access to a credit card or are looking for a better payment experience.”
Credit Card vs BNPL: Brief Comparison
Accessibility: While credit cards are a widely used payment instrument, not everyone who applies for a credit card gets one as financial institutions approve consumers based on strict eligibility criteria. On the other hand, BNPL may be a better option for consumers with limited credit history as it gives them access to short-term loans by leveraging data and technology for strong underwriting. It is suitable for middle-income people and youth who face trouble in getting a traditional credit card but still want to save tax at the end of the financial year.
Facility: The application process is different for both devices, where there is some level of documentation and financial approval required to access the credit card. On the other hand, applying for a line of credit through BNPL is a fast and hassle-free process that requires limited documentation.
Award: BNPL comes with a robust reward structure. With every transaction, consumers can earn attractive cashback rewards making their transaction valuable. Credit cards also offer rewards; However, these are usually in point form and are limited to merchants with whom the credit card company has tie-ups.
Interest Charges and Repayment Flexibility: BNPL usually allows purchases in installments with little or no interest. The free credit period can range from days to months. In case of credit cards, the customer usually has to repay in a month. If one does not pay the balance on time, the charges can add up rapidly.
joining fee: Credit card ownership is usually a prestige factor for many people, and financial institutions typically charge a price to welcome consumers into credit card circles. This includes joining fee and annual fee, among others. BNPL on the other hand is more inclusive and economical, usually no joining fee or annual fee or hidden charges are levied.