When it comes to leveraging plastic, it is often said that the most delightful experience is a ‘light touch’ experience i.e. an ecosystem which enables cards to be accessed and transactions to be settled with minimal hurdles and maximum ease. Credit cards and buy now pay later (BNPL) cards are being offered on the aforementioned foundation, as these cards are now introducing a regimen of seamless journeys, be it online or offline.
The Reserve Bank of India (RBI) introduced credit cards to the Indian market way back in 1980. However, the rapid increase in the credit card issuance and the concomitant usage has come to the fore only in the last 10 years or so. The below exhibited exponential increase is attributable to multiple factors: mind-boggling increase in e-commerce, wide acceptance of digital payments, maturing of the credit card industry in extending attractive offers, and above all, a dramatic change in consumer attitude towards spending.
For instance RBI data reveals credit cards in force in March 2012 were 1.76 crore with a spend of INR 8,952 cr. Compare this with March 2022, when the credit cards in force are 7.36 cr with a total spend of 1.07 lakh cr.
When compared with credit and debit cards, BNPL cards like ‘Slice it’ and ‘Uni Card’ are a relatively new method of plastic based payments. These are akin to loan limits granted to consumers, which can be accessed via the Visa payment platform.
The USP of this facility is that the total spend is split into three equal parts and this amount can be repaid over three months without any interest cost. Customers have to shoulder a rather high “carry forward” fee if they repay less than the due amount.
BNPL cards can be made available to even those customers who do not carry a credit score. Additionally, since first-time borrowers are appropriately encouraged, the government objective of financial inclusion is also very well served.
Credit cards, on the other hand, are issued to only those customers who have an existing and acceptable credit history, or to those who have a good banking relationship with the issuing bank. Credit cards allow a user to spend for a month and then the entire payment is to be deposited in another 15-20 days i.e. a credit free period of possibly up to 45 days. Thereafter, the consumer must brace himself to service an exorbitant interest charge.
Credit cards and BNPL cards function in a similar manner, the primary differentiation arises on the basis of credit limit offered, usage pattern, the structure of repayment, eligibility and the value added features loaded onto the cards. A detailed comparison can be seen in the table below:
Ownership costs of credit cards are generally higher as there is a joining fee, annual fee, rewards redemption fee etc. whereas BNPL cards do not have a joining or annual fee.
Both these types of cards cater to diverse market segments. BNPL cards are for young adults who might be availing credit for the first time, or for customers who need liquidity support in their monthly spends — a widespread phenomenon in the post-covid scenario.
Credit cards cater to a more mature customer who has a higher ability to spend on his card and to avail premium benefits. BNPL cards allow new-to-credit users to be on-boarded digitally in a seamless manner, and are therefore an effective vehicle to enhance plastic penetration and usage.
Essentially, these cards assist consumers with short-term liquidity: BNPL cards allow customers to split transactions over a three-month interest free period. BNPL cards are still in a nascent stage but the industry’s innovation has indeed caught the eye of the market.
As per the RBI, the total active credit cards as on February 2022 are about 71 million whereas the total active debit cards are 935 million. There is a near infinite potential for all types of plastic card issuers as the market remains hugely under penetrated.
Up until now only banks were allowed to issue credit cards ; recent changes in RBI guidelines permit (after due approval) non-banking financial companies (NBFCs) to also issue credit cards. Intense competition is always good news for consumers.
Issuers must exercise due diligence when on-boarding new customers, thereby ensuring a healthy portfolio; consumers have to be careful and refrain from impulsive spends, hence avoiding a ruinous debt trap.
Nonetheless, do select a plastic that best aligns to your spend pattern, a judicious leverage of credit will always lift your lifestyle.