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Buy Now, Pay Later: A New Generation of Credit Cards

The Paypers


Over the past few years, the Buy Now, Pay Later (BNPL) market has grown significantly – a report released earlier in 2022 projected BNPL to account for 9% of all North American ecommerce transactions and 12% of all European ecommerce transactions by 2025. Further, parts of the global BNPL landscape have started to show signs of maturation with the development of vertical-specific BNPL offerings, the acquisition of smaller BNPL players by those with greater market share, and the increasing popularity of white-labelled BNPL solutions by some retailers. With these trends in mind, considerable media focus has been directed toward the evaluation of BNPL as a usurper of credit cards, or as the new ‘credit card’ of younger generations of consumers. But the true threat BNPL represents to credit cards as a payment method has only been minimally explored beyond vague assumptions and alarmist claims. Thus, the goal of this article is to examine the attractiveness of BNPL as an alternative to credit cards, as well as the extent to which BNPL has been truly embraced as a substitute by consumers. 

Is BNPL really new?

BNPL shares characteristics with many popular payment methods. The most salient example is the credit card, another way of buying goods at checkout while delaying payment. A common comparison is also often made to layaway, and to general plans allowing consumers to pay larger balances in a smaller number of instalments.  

Despite these commonalities in structure, the rise and popularity of BNPL – exacerbated by the financial crisis in the mid-2000s as well as the more recent COVID-19 pandemic – seems to be attributable to its unique traits, rather than those it shares with other payment methods. For example, one thing many BNPL companies highlight is the lack of interest attached to their payment plans, as a key justification for using BNPL over credit cards to consumers. This has been a largely successful strategy. Even if BNPL loans represent a risk to consumers who may be more likely to shop impulsively, an analysis by the Kansas City Federal Reserve in 2021, which compared the cost of a USD 500 purchase across three different payment methods (i.e., BNPL, a credit card with an APR of 17%, and layaway with a service fee of USD 5) found that BNPL is often the least expensive of the three methods of payment (assuming on-time repayment of the loan by the consumer). For those who have done the math, this may be one reason they are drawn to BNPL loans. The lure of an interest-free deferred payment option in and of itself may still be attractive for those hoping to avoid longer-term debt. In a recent TSG survey of over 500 US consumers, from a lengthy list of potential product features, 82% of consumers selected ‘no interest’ as the most important consideration to them when choosing a BNPL offering.