Planning to use Buy Now, Pay Later cards? Know these pros and cons

Many fintech companies are collaborating with non-banking financial companies (NBFCs) to offer buy now pay later cards. These BNPL cards work like prepaid payment instruments (PPIs) with a credit line tacked on at the end and help customers in making purchases without paying from the pocket upfront. Given its rising popularity for various reasons ranging from easy terms and quick access, BNPL looks poised for strong growth.

For starters, let's understand what exactly is a BNPL card and how it works?

For anyone eligible for a credit card, a BNPL card is another form of credit that they can use to shop for higher-priced items without derailing their finances, said Rajat Deshpande, Co-founder and CEO at FinBox in an interaction with CNBC-TV18.

“For someone with no access to formal credit, a BNPL card is a source of funding that keeps them afloat during hard times. This can be used to fund a lifestyle, or a livelihood -depending on the customer’s spending habits, financial situation or behaviour with loaned money,” Deshpande said.

Basically similar, but fundamentally differently — a BNPL card and a credit card offer customers the ease of payment options with varying degrees of flexibility, Deshpande said.

"Opting for a BNPL card will likely not impact credit scores since it doesn’t involve a hard credit check, but failing to honour payments can attract hefty fines and lower the future chances of availing credit. On the other hand, credit cards can impact CIBIL score," he added.

Also, the BNPL penetration in India remains largely confined to online platforms. So it’s fine as long as customers are buying clothes, consumer durables or electronics online using it. But to pay for petrol or make utility payments, a BNPL card won’t cut it, Deshpande said.

And, that can be done by a credit card.

There are several reasons why someone should consider these BNPL cards launched by fintechs, said Amit Das, CEO and Co-founder at Think360.ai while talking to CNBC-TV18.

“Most of them have an underlying bank relationship, which makes them robust products. Credit policy norms of these fintech led cards are less strict compared to larger banks' policies. So, there is a higher chance of getting a card for many first timers. This allows one to build their credit profile and improve their credit scores through prudent usage and repayments. We see alternate data and score backed cards all the time which allows customers to get a card even if they do not have a formal credit score from credit bureaus,” Das said.

Lastly, and very importantly, Das added, these products help with liquidity/ cash flow management.

"Many people have erratic big expenses, such as healthcare needs, school fee payments, etc. The ability to split these big expenses into 3 interest free payments can be a huge help in easing the liquidity/cash crunch that many families go through. There can be a significant market for that," he said.

Echoing Das's views, Nitin Gupta, Founder and CEO at Uni said that these products solve different problems like flexibility, affordability and convenience, while giving different value propositions to customers than what the existing credit products offer.

"Absolutely," said Amit Kumar, founder at GalaxyCard.

"The premise of BNPL is simple. Consumers get a short, interest-free loan to stretch out payments on big or even small ticket items. So, these are a great boon for people who are currently not being served by banks. These cards are a lot easier to get than bank cards. These cards could be used in a responsible way to bring forward consumption rather than racking up big, high-interest revolving credit lines. The interface, usage and repayment methods are also much more friendly. Payments are charged directly to a borrower’s credit or debit card," Kumar said.

However, before using any kind of credit, it's vital to understand that customers need to repay the amount within a determined period.

Those considering BNPL cards should check for partner merchants to ensure a wider acceptance, the payment norms and interest rate policies as well as restructuring options, Deshpande told CNBC-TV18.

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