Effectiveness of BNPL Services:
One of the famous banks, Capital One has declared in the recent past that it is going to waive off the usage of their credit cards funding BNPL (buy now pay later) dealings. In accordance to Capital One BNPL “can be risky for customers and the banks that serve them”. Is it so? Let’s discuss about it.
The Buy now pay later service provider ensures the wholesome payment to the seller on behalf of the buyer. This facility is only allowed to qualified customers. Then the buyer is going to pay off to the BNPL service provider in instalments charged to the credit card of the customer’s.
The latest service is more easy to understand and use. They aren’t like credit cards which include many hidden fees, interest, penalties etc. Whereas, BNPL providers show all the fees, rates and payments in a transparent manner. Most important to note is that, there aren’t any such interest charged by BNPL providers for it’s customers.
For the seller, acceptance of BNPL is all the way similar to credit cards. They pay some fee to the provider of BNPL of like 4%-8%. The settlement between the provider and the seller is done in a direct manner. The seller receives the total money of it’s product regardless of the number of pays done by the buyer.
The fees incurred for Buy Now Pay Later is 4%-8% which is rather more than the credit cards. But here, the BNPL provider stands a chance to face the risks of fraud and chargebacks. The seller of the product stands in a positive position where they are confident to receive the total payment also if the buyer is a fraud.
Capital One holds almost about 62 million credit card accounts. The revenue they earn come from the interest they charge from the customers for their credit debt. But in case of BNPL, the risk of the provider increases even more because the issuers do not stand a chance to profit anything from it. Also, they have to face the competition in the market where companies are providing low-fee debit cards, gift cards etc.
The say of Capital One for buy now pay later, “ can be risky for customers and the banks that serve them” absolutely holds importance. All types of personal debt are excessively risky for the providers but easy for the customers. Well, credit cards and BNPL are different on many instances though they look similar.
The not declared thing in case of Capital One is that it receives only interchange fees from the seller of the products when the buyers make Buy Now Pay Later purchases. But at the time when the buyers depend in credit card debt directly, Capital One stands in a position where they also collect interest and late fees.
Summarising, Capital One is making lower money from this service than from credit cards service. By stopping it’s credit cards from providing buy now pay later transactions, it is surely protecting it’s profits. Thus, we have discussed in a broader form, why BNPL is riskier for it’s providers. Hopefully, the article was worth reading for you. If yes, add a comment in the comment box. Thank you!
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