Do you really need the buy now pay later cards?

The rise of fintech companies over the last two years has given a boost to digital lending, which in turn has resulted in the growing popularity of the Buy now Pay later (BNPL) scheme. BNPL cards like Sliceit, Postpe, Uni, or Lazypay, apart from serving those who are generally not eligible for credit cards, have also emerged as new challengers to traditional credit card companies. So, what are the benefits or issues of a BNPL card compared to credits cards, and are they worth your time?

Credit line v/s credit card

BNPL cards are not technically credit cards but a credit line that can be seen as short-term consumer loans. Such loans are generally provided by an NBFC, while a fintech company manages the interface. So, one will find the name of the NBFC in the CIBIL report instead of the fintech company/brand. Besides, 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 case of a credit card, there is generally only one party, which is the bank that manages the interface, distributes the credit, and issues the card to consumers. This ensures a single point of contact in case of any query from the customer. However, for BNPL cards, one may have to deal with the NBFC in addition to the fintech company for any queries.

Target audience

BNPL cards target people who don’t have any credit history to be eligible for credit cards (generally a younger audience) and so the financial risk involved here is more. Credit card issuers generally target a working population which has good credit history and so their risks are much lower.

Joining and annual fees

BNPL cards don’t usually have any joining or annual fees. When it comes to credit cards, many basic and intermediate cards do not charge such fees. Almost all premium cards (specially lifestyle cards) have joining and annual fees which can be even as high as ₹50,000- 60,000 plus 18% GST. BNPL cards also give 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 of the BNPL cards allow you to pay in parts instead of one full payment. Uni card gives a cashback of 1% if the loan is repaid in full instead of in instalments.

Credit cards give rewards in three ways: cashbacks, reward points, and air miles. Cashback cards like Axis Flipkart and ICICI Amazon pay give 5% cashback for purchases on Flipkart and Amazon, respectively. Axis Flipkart also gives 1.5% cashback in case of no-cost EMI purchases, while IDFC cards and Axis Ace give cashbacks in the range of 2-2.5% on almost every transaction. Many premium cards give reward points that can be used to purchase products, book flights or hotel rooms. Cards like HDFC Infinia, Diners Club Black, and SC Ultimate return 3.3% on most such transactions. Then there are cards like SBI Etihad or Axis Vistara which give greater returns (mostly more than 10%), particularly to frequent flyers, 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 give 12-18 days to settle any monthly dues. Due to such very short credit period, the chances of an user missing the due date are higher in the first case, whereupon they have to pay late payment fees and interest charges. One major issue with almost all BNPL cards is the near lack of privacy for the customer. Most of these firms ask for access to contacts, SMS, and metadata information of all apps installed on the users’ devices apart from the usual data like location and KYC details. These additional permissions to access sensitive data like contacts are not generally required for credit cards issued by banks.

Grievance redressal system

In case of credit cards, banks are a single point of contact for any grievance and their grievance redressal system is available 24*7. With BNPL cards, many consumers get stuck between the fintech and NBFC firms.

Conclusion

BNPL cards are a new phenomenon, but the disadvantages outlined above outweighs any benefits.

Kashif Ansari is an assistant professor at Hansraj College, University of Delhi.