Buy Now, Pay Later Preferred Over Credit Cards by Gen Z and Millennials ⋆

Buy Now, Pay Later Preferred Over Credit Cards by Gen Z and Millennials

More credit cardholders ages 18-34 would prefer to use a Buy Now, Pay Later (BNPL) service than their existing credit card if faced with a need to borrow, according to Auriemma Group’s latest issue of Cardbeat UK. buy now pay later companies

BNPL popularity and usage has grown exponentially in the UK since Klarna launched in September 2016, accelerated by the pandemic and the resulting shift to online shopping. In these 5 years, firms such as Laybuy, Clear Pay and PayPal have entered the BNPL space, capitalising on the rising demand from consumers.

Auriemma Group’s latest research revealed a significant shift in borrowing preferences. Among credit cardholders, 20% would prefer to use a BNPL provider (e.g., Klarna) if they did not have enough funds available on hand, representing a 43% increase since November 2020. Meanwhile, the proportion of cardholders electing to borrow on their current credit card fell to 38%, representing a 17% decrease. The growing preference in using a BNPL product to borrow is largely attributable to older Gen Z and Millennial cardholders. Nearly three in ten (29%) say they would prefer to use BNPL when they do not have the funds to hand, compared to 25% who prefer using their credit card.

UK Neobanks are picking up on this trend, with Monzo and Curve announcing the launch of BNPL products last week, and Revolut expecting to follow suit. High Street banks such as Barclays have also expressed an interest to pursue a BNPL venture. But for the larger players bringing a product to market quickly is not easy, and with regulation coming from FCA by the end of 2022, time is of the essence.

“This shift in preference is leading some cardholders away from traditional credit solutions,” says Jaclyn Holmes, Director of Research at Auriemma Group. “Credit providers should evaluate their product sets to understand how they may need to adapt and differentiate in order to meet their customers’ evolving needs.”

Auriemma has seen credit card cancellations increase as consumers look to other payment and borrowing methods. 14% of credit cardholders have cancelled a card in the past 18 months, up from 8% in November 2020. And this proportion increases to 24% among those who have used a BNPL plan.

While BNPL has experienced significant growth, credit and debit are still the preferred payment choices. BNPL only captures 7% of total transactions while credit and debit capture far more (44% and 41%). Issuers looking to meet growing consumer demand could integrate BNPL into new or existing credit card products, where there is interest from 43% of cardholders. Buy Now Pay Later companies

“As BNPL continues to grow in popularity we expect interest in credit card instalments to rise further,” says Holmes. “As we’ve seen in the US, this type of offering gives issuers a way to compete directly with BNPL providers without cannibalising their credit card portfolio.” Buy Now Pay Later

Most popular buy now, pay later apps buy now pay later companies

Affirm

Interest rates

0% to 30%
Loan terms

1 month to 48 months
Fees

There are no late fees, but making late payments can affect your ability to get a loan in the future and possibly your credit score.
Return policy

Customers are only refunded the principal amount, so if you don’t have a 0% loan, you won’t be refunded for the interest you paid before making the return.
Available merchants

Affirm has 12,000 merchants including Amazon, Peloton, adidas and Target. Through affirm.com or the Affirm app, consumers are also able to use the BNPL option at any retailer, either online or in-store, that aren’t integrated with the company. Consumers will receive a single-use virtual card to pay for their purchases.
Loan amounts

Up to $17,500 on a purchase.

Afterpay

Interest rates

0%
Loan terms

Afterpay only offers 1 loan option: Customers can make 4 installment payments over 6 weeks. You have to make one down payment (typically 25% of the order), and then a payment once every two weeks.
Fees

Afterpay does charge late fees: $8 or 25% of the transaction, whichever is less.
Return policy

In order to return items, you’ll have to go through the merchant first. Since you don’t pay interest on your Afterpay loan, you don’t have to worry about not being refunded for interest. Afterpay also offers partial refunds on orders.
Available merchants

Approximately 100,000 merchants globally. Consumers can also use the Afterpay Card to pay for purchases in store.
Loan amount

The amount of credit you can access depends on how long you’ve been an Afterpay customer and on whether you’re making your payments on time and in full. A new user will be able to spend less than someone with a longer history.

Zip

Interest rates

0%
Loan terms

4 interest‑free installment payments over 6 weeks
Fees

Zip charges a $4 transaction fee for every purchase, or $1 per payment.
Zip will charge a $7 late fee for each late installment payment (this amount may vary by statute and state). If a customer is one day late with their payment, or if a customer has a delayed paycheck, Zip may be willing to move payment due dates.
Return policy

Customers have to go through the merchant for their refund. Once the merchant has processed the refund, a refund is processed by Zip and the customer will get their money back.
Available merchants

Zip is connected with over 51,000 merchants globally, including Target, North Face and Wrangler.
Loan amounts

Typical purchase amounts range between $35 and $1,500, but maximum amounts vary by retailer.

‘Pay in 4’ with PayPal

Interest rates

0%
Loan terms

There is one loan option: Make 4 installment payments due every two weeks (for a total of 6 weeks). The first payment is due at the time of purchase.
Fees

There are no late fees.
Return policy

Customers must go through the merchant in order to receive a full or partial refund.
Available merchants

Pay in 4 is available at millions of merchants through the app, but it’s not accessible for merchants that aren’t integrated with PayPal.
Loan amount

Orders must be between $30 and $1,500