The old payment method that nobody thinks will rise again, currently is a hot topic in the Fintech industry, which is Buy Now Pay Later Apps (BNPL). Being considered as a sub-niche of credit cards, BNPL apps allow users to pay expenses with no-interest installments. It is recorded that 75% of Buy Now, Pay Later users in the US are Gen Z and Millennials, who age from 12 to 30 years old, spend a huge amount of time on the internet, and catch the hot trend rapidly. Since BNPL is quite similar to credit cards, users are wondering which kind of payment is best suited for them. So, let’s find out the differences between BNPL applications and credit cards.
1. Signing up processes of Buy Now Pay Later Apps and Credit Cards
Setting up a Buy Now, Pay Later account is extremely easy and convenient when customers just need to provide their basic information and bank accounts to connect with platforms. With BNPL, you can create an account in a few minutes without complicated steps and credit checks. Because of the easy signing up process and several captivating benefits, many people choose this kind of payment when retailers suggest it. Meanwhile, owning a credit card needs more requirements. Normally, only over 18 years old customers, who have a stable income, can hold a credit card. Here are some typical conditions for a cardholder to have a credit card in Viet Nam:
- Over 18 years old
- Have VietNam citizenship or being a permanent resident
- Have monthly income at least 3 months in a company or need proof of financial through deposit book, certificate of land use rights, etc that verified by banks
- Prove the ability to meet payment requirements through credit checks and credit history
It can be seen that credit cards require cardholders to have a strong or stable income. Meanwhile, the 2 groups that have huge demands on shopping, which are Gen Z and Millenials, don't meet the requirements to own credit cards due to unstable income and residence issues. Consequently, when BNPL platforms are introduced again, youngsters who have a tight budget and unstable income find it a better choice than credit cards since they can set up an account immediately and easily without credit checks. BNPL contributes to encouraging customers to purchase unnecessary products as it creates a sense of “pay less” than buying at once.
Bottom line: It is easier to create a BNPL account than a credit card account.
2. Credit check when using Credit Card
A credit check is one of the important and indispensable processes when opening a credit card. When holding a credit card, users need to accept that banks will have the right to check their credit history. A credit check is used to update and check the financial conditions of cardholders so that banks can realize the negative or positive signs in their finances, avoiding the situation that users are bankrupt and unable to pay the installment. In contrast, BNPL providers do not have any control over users’ accounts. Due to the strong credit policy, credit cards are usually paid for big-ticket items such as houses, cars, while smaller items can be paid by Buy Now, Pay Later.
Bottom line: Banks have the right to check the credit history of a credit card holder while they can not do that with Buy Now, Pay Later users unless they agree.
3. Credit history when using Credit Cards
For credit card users, by having a proper credit history, they can gradually gain credit scores, which is a way to enhance their credit reputation to have more chances of getting other installment plans. The more credit score you have, the more reputation and chances to get big-ticket item installment. In contrast, a late payment will negatively influence your credit score. Meanwhile, most BNPL platforms do not record the credit history of users. Therefore, whether you make on-time or late payments, it does not affect your installment power. That’s why BNPL is suitable for youngsters to pay small-ticket bills such as clothes, smartphones, etc as they don’t have a stable income, so late installment payments do not have any impact on their opportunities to make other installment plans. Meanwhile, people who have demands on high-ticket items such as houses prefer using credit cards than BNPL platforms. As with huge assets like houses, buyers need to prove their financial conditions to make sure that they are able to make on-time installment payments. So, using credit cards help them to prove their finances through credit history and have more chances of paying houses in installment.
Bottom line: While credit history and credit scores are useless with Buy Now, Pay Later users, it helps credit cardholders to increase the opportunities for other installment plans.
4. Spending Limits of Buy Now Pay Later Apps and Credit Cards
Both BNPL and credit cards have limits on how much money users can spend each month. With BNPL, customers can use the available spending range of platforms or set the number of expenses by themselves. Some BNPL providers such as Klarna offer up to $1000 each month, while Afterpay offers an estimated spend limit. The order limits also depend on stores. For example, Target offers Afterpay on purchases up to $1000 while the figures for Big Ware are $1200. When opening a credit account, users have to issue a credit limit, which is dependent on the bank’s assessment of their application. Minimum limits for typical credit cards are from $500 to $20000. To upgrade the spending limits, users need a good credit history and credit scores, proving that they can pay the installment on time. There are credit cards with no spending limit, but usually for VIP users, who have a high income.
Bottom line: Credit cards can offer a higher spending limit than Buy Now, Pay Later when users have good credit history and credit scores.
The 2 kinds of payment offer a quite similar period of interest-free, which is 44-55 days for credit cards and 56 days for BNPL. With BNPL, customers can pay the same amount of money in terms of a few weeks or months, normally 4 equal repayments over 8 weeks with no interest fees. Once the system records installment plans successfully, all the payment is automatically done every term. So, users can avoid late payments, which cost about $7-$12 per month, depending on different Buy Now Pay Later Apps. For credit card users, they have to pay a minimum repayment each month. To decrease the interest fees, customers can decline the installment terms by paying more in some months.
Bottom line: Both BNPL and credit cards have interest-free periods. While credit card users have to pay minimum repayment each month, Buy Now Pay Later Apps usually allow equal repayment.
Most Buy Now Pay Later providers don't have reward programs yet. It means that whether you pay your installment expense on time, you don't receive any rewards. In contrast, credit cards offer a variety of rewards such as gift cards, cashback, points for its users to encourage on-time payment and also advertise other services. For example, reward points of credit cards can be exchanged into a voucher for a package tour. So, on-time payment in credit cards is extremely beneficial for users as they can earn rewards and credit scores.
Bottom line: Credit cards offer various reward programs while Buy Now, Pay Later providers do not reward their users.
7. Buy Now, Pay Later Apps or Credit Cards
There is no “one size fits all” in case of payment solutions. What kind of payment is best suited for you depends on your purpose. For young people who have unstable income and have the intention to make installment plans on small goods that can be paid from 6-8 weeks, Buy Now Pay Later is the better choice. However, if you want to purchase a car by installment, a credit card seems to be more suitable. So, It is hard to state which payment method is the best.
Let’s take your financial conditions, installment terms, interest fees, and other factors such as rewards, credit scores into considerations to choose BNPL platforms or Credit Card for installment.
If you want to build and develop your own Buy Now, Pay Later platforms with cutting-edge technology, don’t hesitate to contact us for free consulting. We, SotaTek, are one of the trusted service providers for top Fintech companies 2021. With the best Fintech software developers, we are confident to provide you with various B2B Fintech Software Development Services and Web& Mobile App Development Services with the latest Web Development trends for the Fintech industry.