The rise of fintech companies over the past two years has fueled digital lending, resulting in the increasing popularity of the Buy Now Pay Later (BNPL) scheme. BNPL cards such as Sliceit, Postpe, Uni, or Lazypay, in addition to serving people who are usually not eligible for credit cards, have also emerged as new challengers to traditional credit card companies. So, what are the benefits or issues of BNPL cards as compared to credit cards, and are they worth your time?
credit line vs credit card
BNPL cards are not technically a credit card but a line of credit that can be viewed as a short-term consumer loan. Such loans are generally provided by an NBFC, while a fintech company manages the interface. Hence, one will find the name of NBFC in CIBIL report instead of Fintech company/brand. Furthermore, there is a third player: the bank that issues these cards, as fintech companies cannot do so on their own due to RBI regulations. In the case of credit cards, there is usually only one party, which is the bank that manages the interface, distributes credit, and issues cards to consumers. This ensures a single point of contact in case of any queries from the customer. However, for BNPL cards, any queries may have to be dealt with by NBFCs other than the FinTech company.
target audience
BNPL cards target people who do not have any credit history to be eligible for a credit card (generally younger audience) and hence the financial risk involved is high. Credit card issuers generally target a working population that has a good credit history and therefore their risks are very low.
Joining and Annual Fee
There is usually no joining or annual fee in the BNPL card. When it comes to credit cards, many basic and intermediate cards do not charge such fees. Almost all premium cards (especially lifestyle cards) have annual fees that can be higher. 50,000- 60,000 plus 18% GST. BNPL cards also offer generous cashback offers to its users for spending on Zomato, Swiggy and Uber. Recently, Slice gave 10,000 cashback on Apple products as a promotional offer. Apart from these, most BNPL cards allow you to pay in parts instead of one full payment. UniCard offers a cashback of 1% if the loan is repaid in full instead of in installments.
Credit cards offer three types of rewards: cashback, reward points and air miles. Cashback cards like Axis Flipkart and ICICI Amazon Pay offer 5% cashback for purchases on Flipkart and Amazon respectively. Axis Flipkart also offers 1.5% cashback on no-cost EMI purchases, while IDFC Card and Axis Ace offer cashback in the range of 2-2.5% on almost every transaction. Many premium cards offer reward points that can be used to purchase products, book flights, or book hotel rooms. Cards like HDFC Infinia, Diners Club Black and SC Ultimate offer 3.3% returns on most such transactions. Then there are cards like SBI Etihad or Axis Vistara which give higher returns (mostly more than 10%), especially to frequent travelers, in the form of air miles. When it comes to rewards and benefits, credit cards are currently miles ahead of BNPL cards.
credit period
Most BNPL cards allow users 3-5 days to pay their monthly credit bills (Uni, being an exception, gives 10 days), while most credit cards allow users to settle any monthly dues. Give time of 12-18 days. Due to such a short credit period, a user is more likely to miss the due date in the first case, after which they have to pay late payment charges and interest charges. A major problem with almost all BNPL cards is the lack of confidentiality for the customer. Most of these firms ask for access to contact, SMS and metadata information of all apps installed on users’ devices, in addition to general data such as location and KYC details. These additional permissions are usually not required for credit cards issued by banks to access sensitive data such as contacts.
grievance redressal system
In case of credit cards, banks are the only point of contact for any complaint and their grievance redressal system is available 24*7. With BNPL cards, many consumers are stuck between Fintech and NBFC firms.
conclusion
BNPL cards are a new phenomenon, but the disadvantages mentioned above outweigh any benefits.
Kashif Ansari is an assistant professor at Hansraj College, University of Delhi.