BNPL or Credit Cards: Which is Better for Your Business?

With the rising popularity of BNPL, we cannot forget that there is already an existing short-term instalment option: credit cards. What are the differences between the two options? How can you take advantage of both options to maximise sales your volume?

This article is part of our ongoing BNPL education series, where we aim to inform businesses on the benefits and challenges of implementing this payment option. To learn about BNPL and how it benefits your shoppers and your business, read our first blog which introduces this financing solution.

We've put together a handy infographic for you to quickly refer back to in case you need it right here. Feel free to save the image for ease of future reference!

As a quick refresher...

BNPL is an instalment-based financing payment option that allows users to buy now and pay later. Compared to credit cards, BNPL presents a lower interest financing solution for high-value products like in cosmetics or fashion. 

To understand this payment method in greater detail, refer to our previous blog post which explains this payment option more thoroughly.

Benefits

1. Secured repayment

Credit cards face the issue of disputes, chargebacks and customer delinquency which results in late repayments. With BNPL, you receive the full amount as the customer makes a purchase and repayments are handled by the BNPL provider, along with any disputes, ensuring a steady cash flow.

2. Larger customer base

By enabling BNPL payments, you can tap into the BNPL providers' existing customer base. Well-known providers like Grab, Atome or Shopee already have millions of users, so gaining access to these users will be invaluable to potentially unlocking more sales for your business.

3. Enables business growth

As this payment method enhances your business' cash flow, this ultimately creates opportunities for investment in growth such as hiring more employees, purchasing high-quality equipment and expanding locations. This results in more customers favouring your products or services, generating more profit, and growing your business further!

Challenges

1. Lack of regulations

With its recent meteoric rise to prominence, BNPL is still an under-regulated sector. Lesser protections mean customers may be more reluctant to make purchases with BNPL, while businesses would also be hesitant to offer it in case of defaulters. Thankfully, laws are currently being drafted to more strictly regulate this sector.

2. Low-quality borrowers

Although BNPL can lead to an increase in sales and conversions, there is also the possibility of attracting low-quality borrowers. These consumers either will have high delinquency rates or won't become repeat customers, which might affect the long-term financial sustainability of your business.

3. High transaction rates

Comparatively speaking, BNPL providers typically have a higher MDR as compared to other payment methods. All things considered, the higher transaction rates are a tradeoff for a shorter payment cycle as well as the convenience of the provider handling payments on your behalf. It's up to you to decide if these high rates are a worthwhile investment.

Credit cards—the original BNPL?

Credit cards are typically issued by banks and are tied to some form of a bank account. In order to qualify for a credit card, one would need to submit an application to the bank which includes salary information, employment history, credit score, existing loans or mortgages, and more. 

Benefits

1. Boosted sales numbers

Offering credit cards will open up another avenue of payment for your customers, no doubt encouraging more purchases and higher value purchases due to the ability to defer payments. Along with allowing you to implement recurring payments on these larger purchases, this means higher sales volumes for your business!

2. Seamless payment process

Credit cards process payments electronically, meaning settlements are processed in around two business days. By streamlining how your business gets paid, you can also ensure a more consistent positive cash flow for the daily running of your store.

3. Greater reach and service

Stores that offer credit card payments are often seen as more credible and reliable. Other than that, by taking payments on your online store from internationally-known providers such as Visa, Mastercard or JCB, you can also expand your customer base to more than just the local market.

Challenges

1. Fees and charges

One of the most glaring challenges to many businesses implementing credit card payments would be the associated charges. These charges include merchant transaction charges, processing fees and assessment fees, which can quickly become a significant number that affects your business expenses.

2. Potential customer disputes

Customers may dispute credit card charges which will result in chargebacks. Disputing these claims can be time consuming, and losing the dispute would also result in your business being liable for the charges. Merchants who have frequent chargebacks can also be penalised through increased processing fees or even a suspension of their accounts.

3. Security risks

As fraud schemes become more prevalent, it's critical to safeguard sensitive credit card information. Credit card fraud can lead to chargebacks, your customers losing money and your business' reputation being damaged. Investing in a secure, reliable payment gateway like senangPay can reduce such security risks significantly.

Knowing the differences and similarities between the two payment methods is essential in ensuring your business can fully utilise them both. Ideally, your business would offer both credit cards and BNPL payments, but if you had to choose, understanding your client base, your position in the market, daily overheads, and customer needs is crucial in making the right decision for your store.

Looking for a payment gateway platform that offers BNPL, credit card payments and more? With senangPay, you can offer your customers over 30 different payment options! Feel free to check out our affordable packages or contact our team for a demo or customised package that suits your business needs.