Payment methods have changed dramatically throughout time. Consumers now have more funding options, from paper and coin currency to debit and credit cards. Whenever it comes to finance, customers now have substitutes for credit cards in the guise of Buy Now, Pay Later options, which have grown in popularity as the pandemic has progressed.
During the COVID-19 crisis, 51 percent of consumers said they used the purchase now, pay later options, according to a report by a market research company. Apparel and gadgets are the most popular categories of assets, accounting for almost 40% of all sales, followed by furnishing (32%), appliances (29%), kitchenware (23%), and a variety of other items (23%).
What is BNPL?
Short-term finance is defined as “buy now, pay later.” Several companies provide such point-of-sale monthly loans, and BNPL is accepted at various large stores, which vary by plan. For qualified cardholders, certain credit card issuers also offer monthly payment plans. Each provider’s purchase now, pay later plan is different, but they all have a few elements in common.
These BNPL loans often require an advance deposit payment of a percentage of the purchase price, such as 25%. The remaining fee must be paid in installments for a few weeks or months. Certain BNPL services limit lenders to 4 payments, while others allow them to choose their own payment plan based on their financial situation. Apart from late fees for missing payments, purchase now, pay later options frequently incur no interest or costs.
What is the Buy now pay later approach, and how does it work?
This idea is familiar. In truth, Indians have long been aware of it through the Khaata system, which required consumers to pay their entire bill in one go, usually at the end of the month, rather than spending each time they made a purchase.
Whereas this system is still widely used in small communities and rural regions, these BPNL service companies have given the age-old notion of Khaata a modern twist by digitizing it. Customers may enjoy a smooth shopping journey without having to reveal their financial information or go through additional authentication stages every time they make a purchase using BPNL. Customers could use the ‘buy now, pay later service to order meals, groceries, prescriptions, and other items from retailers like online layaway stores and then pay the total later.
What are the differences when compared to credit cards?
Credit cards, like BNPL loans, can be used in stores, and they can be used to cover gasoline, diesel, electricity bills, and various other expenses. The cardholder will not be charged interest if they fully settle their amount every month.
BNPL vs. Credit Cards:
While BNPL choices are limited to a single transaction from a single merchant, credit cards could be used to make a wide range of transactions. You must repay the minimal payment owed at the end of each month using a credit card. You may have 3-, 5-, or 12-month options with Buy now, pay later. That implies while BNPL may offer more flexible payment options, credit cards will often take more relaxed conditions.
The rates of interest and costs charged by BNPL vary greatly. Some choices have no charge or interest, effectively making them interest-free financing for the customer. This is conceivable because BNPL suppliers still profit from service fees embedded into the product’s price, similar to how payment networks profit from swipe fees for credit cards. They either charge a fixed fee or don’t charge anything at all, and they are evident in how much it will be.