Icon arrow left
May 24, 2022

Store Cards vs Buy Now, Pay Later (BNPL)

Decorative image only.

In the last few years, numerous providers have started offering Buy Now, Pay Later (BNPL) as an alternative payment method for merchants to install in their checkout experiences. BNPL solutions promise merchants an influx of new customers to their storefront while increasing conversion rates and basket sizes at checkout. But do the long-term results measure up?

BNPL products typically come in one of two flavors

Though often discussed together as one, there are two common types of BNPL products with different characteristics.

  • Pay-in-Four: Customers make a down payment at the time of checkout, usually directly from their checking account. The remaining balance is due in three additional payments over the subsequent six weeks.
  • Installments: Customers agree to repay a purchase in equal monthly installments, typically over a 3-18 month time period. The loan may come with an APR, or it may be an interest free (0% APR) offer.

In both cases, merchants must pay the provider a percentage of the transaction value to issue the loan. These rates can range anywhere from 2% to 10% or more depending on the specifics of the BNPL offer being made to the customer. Rates are typically higher for larger purchases, when purchases are spread out over a longer period of time, or when offering a 0% APR.

BNPL costs are high because merchants are subsidizing the cost of financing on behalf of the customer. Since these products carry low- or no-interest rates for the customer, the merchant often makes up the difference for the provider.

Though high in cost, BNPL can be an attractive payment method for merchants in a few different scenarios

There are a variety of scenarios where BNPL

  • The merchant predominately sells high-ticket items that cost many thousands of dollars. For these larger, considered purchases, customers may appreciate the ability to spread their payments out over a longer period of time with low- or no-interest rates offered with an Installments product.
  • The merchant has a debit-heavy customer base. Industry research shows that customers who use Pay-in-Four products would most likely have used a debit card had the Pay-in-Four option not been available.
  • The merchant has limited repeat shoppers. BNPL can be a cost-effective way to attract new customers, but it’s a very costly payment method for existing customers at a brand who would have otherwise paid with a less expensive payment type.

Store cards and BNPL products meet different customer needs

Recent consumer research suggests store cards and BNPL can peacefully co-exist as they serve different customer needs. For customers who value rewards, store cards are the clear winner: 42% of consumers who used store cards for their most recent eligible purchases did so because it earned them more rewards than other payment methods. On the other hand, customers making large purchases tend to see more value in a BNPL offering. The research shows 32% of consumers would be more likely to use BNPL rather than store cards for purchases of more than $1,000, nearly double the 17% that said the same for purchases below $250.

For many merchants, a store card option presents an attractive complement to their existing payment stack alongside BNPL. With a low processing fee of only 0.50%, a store card powered by Tandym is the cheapest way to process a customer payment. Moreover, a Tandym-powered store card comes with a self-funded loyalty program that drives future repeat purchases and larger basket sizes. Even for larger-ticket items, merchants may find that customers prefer rewards back on future purchases rather than merchant-subsidized financing.

Want to learn more? Contact a Tandym sales representative today!