The Lines Between Credit Cards and BNPL Are Blurring

A growing roster of BNPL competitors have different slants on how and where buy now, pay later and traditional products should intersect. Virgin Money's new Slyce offering is one example. Debit cards are playing a growing part in the mix, as Klarna, Affirm and others stretch the buy now, pay later concept.

Increasingly the walls between today’s BNPL, credit cards and even debit cards have been eroding as consumers’ options for buying things on credit become more complicated than ever.

The well-publicized funding and valuation issues of the specialized buy now, pay later companies have caused them to think wider and broader beyond simple merchant-based ecommerce pay in four plans, yet more traditional consumer lenders have also been moving in on the BNPL firms’ turf with their own takes on BNPL.

Increasingly, there is recognition that, in spite of the period of pandemic lockdowns, a huge amount of consumer spending still takes place at the physical point of sale. This realization and the quest for more volume and profit has added momentum to BNPL firms’ use of virtual cards and their adoption of actual plastic cards that can be used at the register.

Virgin Money Slyce: Please Don’t Call It ‘Interest’

Virgin Money announced the introduction of its Virgin Money Slyce Card in the summer of 2022, and actually began its rollout of the buy now, pay later card to people on its waiting list in the fall. It was following a pattern already being seen in the U.S. and elsewhere. (The card is issued by Virgin Money, the DBA of Clydesdale Bank.)

The Slyce Card has been designed for Gen Z and includes in its app the ability to track the user’s credit score. Slyce allows payments at all merchant locations and charges are handled through a single monthly payment. Any monthly spending over £30 can be chunked into BNPL payments after the fact. Plans spread across three or six months carry no fee. A fee applies to nine-month or twelve-month plans.

A classic appeal of BNPL is that purchases most typically carry no interest though they are being repaid over time, though that has not been the case as longer-term plans have become available. In Virgin Money’s Slyce FAQ, regarding “interest,” the company states: “We prefer to talk to you about fees, rather than interest. We think this helps you understand the actual cost of your borrowing. However, if you’d like to know what the fees would equal as interest, please visit our Help Centre.”

Rolling out BNPL as a card from the get-go is atypical. But cards have definitely become part of the BNPL world.

Read More: CFPB to Unleash BNPL Rules that Would Also Impact Data Mining

How BNPL Pioneer Affirm Is Going the Card Route

As BNPL companies adopt card-based strategies, there is a feeling of them “meeting in the middle” with classic plastic. For example, American Express has offered an app-based “Pay It/Plan It” service for years, a bit before the height of the BNPL wave. The latter option permits the cardholder to split a purchase into interest-free pieces for a fee. Similar programs have been introduced by other organizations. Among these are My Chase Plan and U.S. Bank’s ExtendPay. Such plans are based out of the consumer’s existing credit limits and don’t add more credit capacity, only greater payment flexibility and fees in lieu of interest.

Affirm has been working on a card-based approach to BNPL — called Debit+ — since announcing the product in early 2021. Affirm’s Debit+ card is tied to a consumer’s banking account in addition to their BNPL arrangement with Affirm. So far, the service has been in a stage best characterized as “tryouts.” It is not available to all, yet, and Affirm has been revising and tweaking at it gains experience in various nuances, including solving fraud issues.

The focus on a debit card that connects to BNPL is interesting, in a period where research has been indicating a shift towards debit preference among consumers.

During an earnings call, when asked about the appeal of such a product, Affirm’s CFO Michael Linford explained that the concept was intended to add user flexibility and to take Affirm past larger purchases to more everyday spending. In addition, the company’s hope is to open Affirm to more point of sale opportunities.

He also added some perspective from the consumer side, because he has used the product himself, that throws some light on the business case for Debit+. He explained that he uses the card both as a physical card and in his Google Pay wallet.

“I’m able to buy my cup of coffee and that sweeps out of my bank account the following day,” said Linford. “When I go to a nice dinner or buy a bike at a bike store, I can get the purchasing power that I enjoy so much from the Affirm [BNPL] product for that specific transaction.”

The consumer rationale for what they use for which purposes, and how Affirm hopes to supplant that, comes out in Linford’s next comment:

“Most consumers today have to think about using one card or the other. They either use their debit card to pay now or their credit card to revolve. And their credit card stays in the wallet except when they want to revolve and pay for thing over time and their debit card is a primary use card. Or you’ve got consumers who are just transacting on their credit card and they’re not taking advantage of the pay-over-time benefits because they know the minute you start revolving, every transaction becomes a revolving transaction.”

“The genius, we think, of the Debit+ product is we’ve … told the consumer, you can use this one product for all transactions, and you can get the safety and the low cost of your debit transactions along with the flexibility of paying for things over time.”

— Michael Linford, Affirm

In the September 2022 remarks Linford said that early testers of Debit+ use the cards an average of three times weekly. About half the purchases are online and half at point of sale. Linford said the offline purchases are a breakthrough for Affirm, which started online only with its merchant-based BNPL and had been having trouble cracking the point of sale market.

During a November 2022 earnings call Affirm founder Max Levchin, CEO, said he hoped for main launch of Debit+ in January 2022. He spoke at length of the challenges of getting the product right and noted that the company has been careful in how it speaks of results from Debit+ in earnings guidance for analysts until it has it where it wants it.

Read More:

How Klarna Has Married Debit and BNPL Service

Affirm and Klarna have been tied at the top of the BNPL provider rankings and have a comfortable lead over rivals, hence our focus on both. Other providers have also been delving into cards.

Klarna launched its debit-based Klarna Card in the U.S. in June 2022. The card allows users to put purchases into Klarna’s pay in four service, which features no interest charges. Unlike a merchant-based BNPL transaction, where the first payment is typically made on the day of purchase, the card permits users to split purchases into four installments with no down payment. The cardholder’s debit card account serves as a funding source for payments.

Giving Consumers a BNPL Test Drive:

A wrinkle in Klarna's BNPL card is that users pay a monthly fee of $3.99, or rather, they will. When introduced the card was made available with no monthly fee for the first 12 months of use.

One of the features of the Klarna Card is an enhancement of the Klarna app that pulls all usage of Klarna BNPL into one place. This includes card, app and online checkout use.

Little has been said about results since the launch. As a Swedish company, Klarna does not hold earnings discussions as frequently as U.S. lenders.

At the time the Klarna Card rollout was announced, Sebastian Siemiatkowski, Co-founder and CEO, noted that over 1 million U.S. consumers had been on the waitlist for the card. In addition to being eligible for Klarna Rewards Club points for purchases, cardholders can complete “missions” to earn more points. Missions include exploring the app’s money-management functions.

Read More: What Klarna’s Cratering Valuation Means for BNPL’s Future

BNPL Cards’ Place in the Bigger Picture

The BNPL specialty firms’ interest in cards comes at the same time that many of the companies have been shifting from just being credit and payments facilitators. More and more their apps and their websites function as marketing services, exposing BNPL to messages from brands and exposure for products. There’s actually a bidding competition for prime exposure with some BNPL providers. The rivalry for those opportunities somewhat resembles the bidding that goes on for programmatic digital advertising.

Adding cards and physical point of sale purchases to the mix spreads the BNPL firms’ activities with a wider net.

The banking industry tends to approach BNPL as a payment play, not a marketing operation, though some providers offer customization for merchant companies. Citizens Bank’s Citizens Pay is a major example.

At an investor event in the first half of 2022, Chase, the biggest banking industry factor in payments overall, announced that it had set up a waitlist for a pay-in-four program tied to a debit service, though no card was specifically mentioned. There’s been little said since then, though the page with the waitlist is still up on the site and still takes signups.

And then there’s the ongoing mystery of what Apple will do with the previously announced Apple Pay Later product. Most recently a launch in early 2023 has been percolating, after a fall 2022 launch appeared to be postponed. As Apple continues to peel off features and functionality for its Apple Card, the developing outline of what Pay Later could look like continues to form.

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