Buy now, pay later: a new generation of credit cards

Sheridan Trentsenior research analyst at GST (The Strawhecker Band)reveals the potential of BNPL’s new business models based on credit cards.


Over the past few years, the Buy Now, Pay Later (BNPL) market has grown significantly – a report published earlier in 2022 predicted that BNPL would account for 9% of all North American e-commerce transactions and 12% of all European e-commerce transactions by 2025. Additionally, parts of the global BNPL landscape have begun to show signs of maturing with the development of vertical-specific BNPL offerings, the acquisition of smaller BNPL players by those with a larger market share, and the growing popularity of white-label BNPL solutions by some retailers. With these trends in mind, considerable media attention has been directed towards evaluating BNPL as a credit card spoof, or as the new “credit card” of younger generations of consumers. But the real threat that BNPL poses to credit cards as a method of payment has been little explored, beyond vague speculation and alarmist claims. Thus, the objective of this article is to examine the attractiveness of BNPL as an alternative to credit cards, as well as the extent to which BNPL has truly been adopted as a substitute by consumers.

Is the BNPL really new?

BNPL shares features with many popular payment methods. The most striking example is the credit card, another way to buy goods at checkout while delaying payment. A common comparison is also often made to layaway and general plans that allow consumers to pay larger balances in fewer installments.

Despite these commonalities in structure, BNPL’s rise and popularity – exacerbated by the mid-2000s financial crisis as well as the more recent COVID-19 pandemic – appear to be attributable to its unique traits, rather than those that it shares with other payment methods. For example, one thing that many BNPL companies point to is the lack of interest attached to their payment plans, as a key justification for using BNPL over consumer credit cards. This strategy has been largely successful. Although BNPL loans represent a risk for consumers who may be more inclined to make impulse purchases, an analysis of the Kansas City Federal Reserve in 2021, which compared the cost of a $500 purchase on three different payment methods (i.e., BNPL, a credit card with a 17% APR, and a layaway with a service charge $5) found that BNPL is often the cheapest of the three payment methods (assuming the consumer pays the loan on time). For those who have done the math, this may be one of the reasons why they are drawn to BNPL loans. The lure of an interest-free deferred payment option in itself can still be appealing to those hoping to avoid longer-term debt. In a recent TSG survey of over 500 US consumersAmong a long list of potential product features, 82% of consumers selected “no interest” as the most important consideration to them when choosing a BNPL offering.

Beyond the appeal of an interest-free deferred payment option, emerging evidence suggests that there are psychological factors that influence consumers to respond favorably to BNPL loans. A study conducted in Australia in 2021 comparing the amount of money spent by consumers using credit cards versus cash versus BNPL reported that consumers spent more on BNPL, because the amount of money spent seemed smaller to them when it was spread over multiple payments compared to the initial payment for a purchase. Higher receipts have also been promoted by some companies as a selling point to merchants. An article from Klarna noted that average order values ​​were around 45% higher for merchants offering a BNPL payment option, and Afterpay (acquired by Square in early 2022) currently reporting a 40% increase in average order value for customers using BNPL.

The user-friendliness of some BNPL offerings and how they combine seamlessly with consumers’ phones as shopping apps (e.g. Klarna, Afterpay) or add-ons to the digital wallets they may be using. being already (e.g. Pay in 4 from PayPal, Grab PayLater) is another factor that differentiates BNPL from credit cards. Namely, credit cards – while simple to use once an individual has obtained one – require subscription, credit verification, and often a waiting period. BNPL apps can approve a consumer’s use in seconds, typically require only basic personal information, and are often already well integrated into consumers’ online shopping ecosystems. This can make them faster and easier to use than credit cards in many cases.


The attention BNPL has received as a new “credit card” is not without merit, as some BNPL offers can be very attractive (a 2021 consumer survey found that 62% of respondents who used BNPL felt it could replace their credit cards) and the evidence shows that many consumers use BNPL repeatedly, rather than as a single form of payment. Data from a recent The TSG survey also found that 80% of BNPL users agreed that BNPL was a better option than credit cards when making a major purchase, and a Affirm study found that 68% of Millennials wouldn’t make an online purchase without the “pay later” option. Despite consumer demand, the increase in fraud complaints received by Consumer Financial Protection Bureau in the last three years on BNPL’s main companies, as well as concerns about BNPL business model, bad debtsand heavy operating losses reported in 2021 by Klarna, Affirm, Afterpay and Zip are of concern about the long-term viability of BNPL as a means of payment. But at least for now, BNPL can and is being used by consumers to both augment and replace credit cards.

This article was first published in Payment Methods Report 2022the most up-to-date overview of trends and developments in payment methods and the innovative technologies on which these methods operate, emerging consumer habits and strategies to gain conversion and loyalty.

About Sheridan Trent

Sheridan Trent holds a Master of Arts in Industrial and Organizational Psychology – as a senior research analyst at TSG (The Strawhecker Group), she uses her skills to conduct industry surveys, market research and explore emerging trends in the payment industry.

About TSG (The Strawhecker Group)

GST (The Strawhecker Group) is a globally recognized analytics and advisory firm that supports the entire payments ecosystem, serving more than 1,000 customers, from Fortune 500 leaders to more than a dozen of the most valuable brands in the world. Recognized by industry leaders, TSG’s strategic services, market insights and analytics coalesce to give clients actionable and accessible insights.