There has been a healthy rise in bank credit in India 2022 compared to 2021, pointing to the rise in the demand for credit among retail consumers. Bank credit grew by 16.2% in September 2022, which is the highest in the last nine years.
While on one hand, bank credit is higher than ever, the number of credit cards issued in the country is still minuscule compared to debit cards.
So, what fulfils the needs of Indian consumers when it comes to availing credit?
Well, apart from credit cards, users can make use of other ways to get credit from financial institutions. The two most prominent credit mechanisms other than credit cards are:
- Buy Now Pay Later (BNPL)
- Personal loan
Interesting Read: RBI Allows Linking of RuPay Credit Cards on the UPI Payment Rail
While personal loans are very different from credit cards and BNPL, a lot of consumers get confused about the three. In this article, we will outline the difference between credit cards, BNPL, and personal loans along with when and how one should use them.
What is BNPL?
With fintech taking a prominent place in India’s digital economy, new financial products like BNPL became quite popular. The popularity of BNPL is quite huge among GenZ consumers.
As the name suggests, BNPL is a short-term credit that financial institutions such as fintech companies and banks offer users to enable buyers to purchase high-ticket products.
BNPL is relatively a new credit product and is highly regulated by the Reserve Bank of India.
Fintech or non-banking financial companies utilise technology to learn about the customers’ financial behaviour online, their past repayment history, and other similar information to assign a credit limit to each user.
What are the benefits of BNPL?
- Customers can pay via BNPL for online as well as offline purchases
- It has a flexible payment schedule. Customers can either pay via EMIs or total payment the next month of the purchase
- Zero-interest EMI payment is possible with BNPL. However, customers will have to pay interest if the payment is not done on the due date.
- Merchants can offer easy payment solutions to customers
- It is a safe and secure digital payment tool
What is a Personal Loan?
Banks and NBFCs offer personal loans to individuals for their financial needs, which can be quite varied such as marriage, vacation, paying hospital bills, etc. It is a multi-purpose loan and one can use the money for any purpose.
These are essentially unsecured loans that do not require consumers to provide any collateral to banks.
Financial institutions check a person’s employment history, monthly income, past debt repayment history, credit history, and existing assets and liabilities, among many other things. Based on these criteria, banks or NBFCs decide how much personal loan they can offer an individual.
What are the benefits of a personal loan?
- It requires minimal documentation
- Loan disbursement is quick
- One can apply for a joint personal loan along with their spouse
- There is no limitation on the kind of expense personal loan can be used
What is a Credit Card?
Credit cards allow users to purchase products and services without having to pay for them immediately. Users who use credit cards for their purchases have to pay their credit card bills the following month.
Interesting Read: Increase Cash Flow by Accepting Payments Using Credit Cards
Banks partner with card issuers such as Mastercard, Visa, RuPay, etc, to provide different kinds of credit cards to select users based on their credit score and other factors such as past credit history, etc. Depending on one’s creditworthiness, or credit score, banks assign a certain credit limit attached to the user’s credit card.
Banks charge interest to the credit card holder if the bill is not paid on time.
What are the benefits of credit cards?
- There is no need to use a credit card every month. Banks usually don’t charge any monthly fee to users.
- It helps users improve their credit score if they pay their bills on time
- It is beneficial for merchants as it reduces the friction caused due to high price
- It is an easy and secure payment system that is backed by the RBI
- It allows users to purchase products on EMI
- Customers will get reward points on every purchase
What is the Difference Between BNPL, Personal Loans, and Credit Cards?
BNPL | Credit Card | Personal Loan |
| It is a micro-loan that ranges between Rs 2,000 to Rs 5 lakh | The limit on credit card varies from person to person | The limit on personal loan varies from person to person |
| There are no hidden charges | Credit card companies very often levy some hidden charges | There are no hidden charges |
| Usage is limited for purchases on platforms that allow BNPL payments | It is widely accepted among merchants | There is no restriction on how a personal loan can be used |
| No-interest EMI if the bill is paid on time. Users have to pay interest if payment is not paid within the due date | Users can pay a minimal amount based on the total bill within the 30-day billing cycle | A fixed interest on the principal amount is charged |
| There are no reward points for usage | Users get reward points and other benefits for using credit cards | There is no reward system |
| No annual charges are applicable | There can be an annual charge even if users don’t use the card | No annual charge |
Accept Payments Via Credit Card and BNPL Through Paytm
Merchants can easily increase their sales by adding BNPL and credit cards as payment modes at the checkout counter or page. Irrespective of the platform, whether online or offline, users can buy products via either BNPL or credit cards.
Since these two payment modes are different, it is advisable that merchants give their customers both the payment options.
With Paytm for Business, merchants can easily integrate BNPL and credit card payments with their stores.
Interesting Read: Paytm Postpaid – Enabling New to Credit Users to Shop Online
Paytm Postpaid is the BNPL offering from Paytm for Business, which allows customers to purchase products even if they don’t have money in their accounts.
On the checkout page itself, customers can choose to pay via Paytm Postpaid and immediately create an account (if they don’t have one) to complete their shopping. They can choose a convenient repayment method, which can either be a total repayment or EMIs.
Paytm Postpaid is the best incentive merchants can offer their customers to complete their shopping even if they are short of money.
Moreover, there are 62 million credit cards in circulation in India. It simply means that there is a large customer base that wants to pay via their credit cards. You must cater to these customers if you are not doing it already.
With Paytm for Business, you can start accepting money via credit cards from day one of the integration. Merchants should definitely offer credit cards and Paytm Postpaid to their customers as these payment options help in reducing cart abandonment.
Conclusion
To give more payment options to customers, merchants must ensure they have all the payment options enabled on their online and offline stores. They must partner with a payment gateway that has the capability to integrate all payment options.
Paytm for Business does it all without breaking a sweat.
Frequently Asked Questions
Question 1: Is there any difference between credit cards and BNPL?
Answer: Although Buy Now, Pay Later (BNPL) and credit cards are used to purchase products on credit, they are two different payment modes. Once you purchase something via BNPL, you have to pay for that product in equal monthly installments. These payments don’t accrue any interest as long as you pay within 30 days. On the other hand, credit card payments have to made in one go within the payment cycle as decided by the bank.
