BNPL vs Credit Card – What’s the Difference?

BNPL vs Credit Cards - What's the Difference- - iPay88

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In the ever-evolving landscape of modern finance, consumers are presented with an array of innovative payment options to cater to their diverse needs and preferences. Among these, two popular methods have captured the spotlight: Buy Now Pay Later (BNPL) and Credit Cards payments.

The usage of credit cards in Malaysia is nothing new. Credit cards have been circulating for decades; however, BNPL payments started to emerge in the early 2020s.

As individuals seek more flexible and accessible ways to manage their purchases, it becomes essential to understand the fundamental differences between these two payment mechanisms. It is also important for businesses to understand why their consumers would prefer using one over another and be best equipped the offer their customers’ preferred payment options.

In this explanatory article, we embark on a journey to explain the main differences between Credit Cards and Buy Now Pay Later payments.

By shedding light on the key distinctions between these two payment methods, we aim to equip consumers and merchants with the knowledge to make well-informed decisions tailored to their needs and aspirations.

Usage of Credit Cards in Malaysia

Credit cards are relatively popular in Malaysia, and their usage has grown steadily. They are a popular payment method in the country due to the convenience they offer for various transactions, both online and offline. Here are some key points about credit card usage in Malaysia:

  • Payment convenience
  • Reward programs
  • Installment plans
  • E-commerce growth

1. Payment convenience

Credit cards are widely accepted in most retail outlets, restaurants, hotels, and online merchants across Malaysia. They provide a convenient and secure way for consumers to make purchases without carrying large amounts of cash.

2. Reward programs

Credit card issuers in Malaysia often offer reward programs that provide benefits like cashback, loyalty points, discounts, and promotions. These reward schemes incentivize cardholders to use their credit cards for various transactions, further boosting their popularity.

3. Installment plans

Many credit card providers offer installment plans for significant purchases, allowing customers to pay for expensive items over time. This feature can be especially appealing for high-ticket items like electronics or furniture.

4. E-commerce growth

With the increasing popularity of e-commerce in Malaysia, credit card usage has also grown. Online shopping platforms, travel booking sites, and various digital services commonly accept credit card payments.

Since COVID-19, more and more online and offline merchants in Malaysia started accepting credit card payments, reducing the usage of physical cash and bringing more value and convenience to their customers. 

According to BNM, the number of credit cards that were in circulation (including supplementary cards) was 9.92 million in July 2022, or a 3.7% increase compared to 2021. 

Since more and more people are back to full-time employment post-COVID, the number of credit cards circulating in Malaysia will only increase. Therefore, merchants should accommodate customers’ preferences by at least accepting credit card payments and choosing to offer installment plans. 

All iPay88 retail merchants can accept payments from credit cards issued by Visa, Mastercard, and UnionPay; meanwhile, on top of these, our e-commerce merchants can also offer American Express (Amex) as one of the payment options.

BNPL adoption in Malaysia

Over the past four quarters, the Buy Now Pay Later (BNPL) payment sector in Malaysia has experienced robust expansion, bolstered by the rising prevalence of e-commerce. According to a recent Research and Markets report, BNPL payments are expected to grow by 23.6% to reach $2,298.6 million in 2023. 

Looking ahead, the BNPL industry in Malaysia is poised for continued growth in the medium to long term. The steady adoption of BNPL payments is anticipated due to the growing support from both users and merchants.

Why should business consider BNPL?

Merchants should consider adopting BNPL services for several compelling reasons, each of which can potentially benefit their business in various ways:

1. Increased conversion rates

BNPL can reduce customers’ cart abandonment rates by providing them with an alternative payment method that offers flexibility. Shoppers who might have hesitated due to upfront costs may be more likely to complete their purchases when given the option to pay in interest-free instalments.

2. Larger average order values

BNPL services often enable customers to afford higher-priced items by spreading the cost over time. This can lead to larger transaction sizes, contributing to increased revenue for merchants.

3. Attracting new customers

BNPL services attract customers who prefer instalment-based payment options rather than paying the full amount upfront. By offering BNPL, merchants can tap into a customer segment that they might not have reached otherwise.

4. Competitive advantage

As BNPL is in the early stages of adoption, it is still gaining popularity. Merchants who offer these services gain a competitive edge. The ability to provide flexible payment options can differentiate a business from competitors and contribute to a positive brand image.

5. Partnerships with BNPL providers

Merchants can collaborate with BNPL providers to access their customer base and promotional opportunities. Most of BNPL providers in Malaysia run regular marketing campaigns, which dramatically increase exposure to brands featured.

In order to reap the benefits offered by BNPL payments, it’s crucial for merchants to work with reputable BNPL providers. At iPay88, we have integrated with Atome, PayLater by Grab, and Moby.

BNPL vs Credit Cards: Main Differences

How is BNPL different from credit card? Credit Cards and Buy Now Pay Later (BNPL) services are distinct financial tools that serve different purposes and have several key differences. Here’s a breakdown of the main differences between the two:

1. Nature of Payment

  • BNPL: BNPL services allow customers to split the cost of purchase into instalment payments. These payments are typically interest-free for a specified period. 
  • Credit Cards: Credit cards provide a revolving line of credit that allows users to borrow money up to a certain limit set by the card issuer. Cardholders can make purchases, and the balance can be paid off over time.

2. Interest and Fees

  • BNPL: Many BNPL services offer interest-free installment plans, especially if payments are made on time. However, some BNPL providers may charge interest or fees for extended repayment periods. 
  • Credit Cards: If the cardholder carries a balance from one billing cycle to the next, interest is charged on the remaining balance. The interest rates can be relatively high, making carrying a balance costly. For installments, some banks will charge an additional percentage on split payments.

3. Approval Process

  • BNPL: BNPL services usually have a simpler approval process that requires basic information. They are often more accessible to individuals with limited credit history or lower credit scores. 
  • Credit Cards: Applying for a credit card often involves a more comprehensive application process, including a credit check and income verification. Approval is based on credit history and other financial factors.

4. Repayment Structure

  • BNPL: BNPL payments are structured as fixed installments over a specified period. This can help customers budget and plan their payments more effectively.
  • Credit Cards: Credit card payments can vary each month based on the customer’s spending and the repayment amount they choose. Minimum payments are required to keep the account in good standing. 

5. Merchant Integration

  • BNPL: BNPL services are often integrated with specific merchants or online retailers. They offer an alternative payment option targeted at those specific vendors. BNPL instalments are available to all shoppers having credit or even debit cards from any bank. 
  • Credit Cards: Credit cards are widely accepted at various merchants, both online and offline. However, to offer instalment plans, merchants are required to work with each bank individually. It means that an instalment plan for Bank A will only benefit shoppers with credit cards issued by Bank A.

6. Charges and Settlement

  • BNPL: BNPL is often a more expensive option for merchants as the MDR is higher. BNPL partners also offer the settlement to merchants in full.  
  • Credit Cards: Credit cards often offer lower MDR (merchant discount rate) for merchants for both one-off and installment transactions. The full amount is also settled to the merchant once the payment is processed.

Both credit cards and BNPL services have their advantages and considerations, and the choice between them depends on the customer’s financial goals, spending habits, and the terms offered by the credit card issuer or BNPL provider. 

However, both payment methods are beneficial for merchants as they help merchants attract a broader demographic of prospective shoppers. It’s always wise to offer a vast selection of payment options, as different customers would have different preferences. 

At iPay88, we offer a wide range of Malaysia’s favourite payment methods that will unquestionably facilitate your business growth and customer experience. Our consultants and top-notch innovative payment solutions have helped tens of thousands of local and international merchants achieve their growth.

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