Virgin Money is launching its Buy Now, Pay Later credit card targeting Generation Z borrowers, which will allow them to spread the cost of purchases over up to six months interest-free.
The Challenge Bank’s Slyce card will allow customers to split payments over up to 12 months, with no interest charged on the three- and six-month options.
Virgin Money’s move is another sign that major banks are becoming increasingly eager to offer BNPL services to compete with the likes of Klarna, Clearpay and Afterpay.
Slyce of the Action: Virgin Money has announced a new credit card product that will allow customers to buy now and pay later
Before Virgin, NatWest, HSBC and Monzo all announced their entry into the BNPL market.
BNPL allows shoppers to make payments for goods, often without interest or fees unless they fail to pay on time.
The flexible payment method has grown in popularity over recent years, with Citizens Advice estimating that 14 million Britons used BNPL services during the first year of the pandemic.
More recently, it also claimed that 1 in 12 people use BNPL for basic costs like buying food.
Virgin Money’s BNPL product will mean customers can choose how to pay their monthly credit card balance.
They can either pay the full amount or pay in installments of three, six, nine or 12 months to fit their budget.
This means that instead of having multiple BNPL plans and payments with lots of providers, Slyce customers can manage all their BNPL spending on one card.
Slyce was designed and built with the Gen Z audience in mind, according to Virgin Money
Unlike some BNPL providers, Slyce is also fully regulated, and as such will have a range of controls and safeguards in place, including credit and affordability checks.
‘Traditional personal finance lenders are bound to want a piece of the burgeoning BNPL market, so it’s not surprising to see Virgin launch this product,’ says Andrew Hager, Moneycomms personal finance expert.
“It’s organized which is a positive start, plus it will allow borrowers to keep all their BNPL activities in one place – I think keeping tabs on multiple repayments is the biggest issue for borrowers who use BNPL regularly.”
What are the fees involved?
While Slyce’s three- or six-month payment plans will be fee-free, for longer plans of 9 or 12 months, an installment fee will be added.
The Virgin installment fee will be a percentage of the total purchase price. For nine monthly payments, a 7.5 percent fee will be added, and for 12 monthly payments, a 10 percent payment fee will be added.
“Borrowers who pay off short-term can do this at no cost and the 9- and 12-month borrowing fees aren’t that expensive,” adds Hager.
However, buying a 0 percent credit card would be a cheaper alternative if you want to borrow for the long term.
“M&S Bank, MBNA, Sainsbury’s Bank and Barclaycard are all currently offering 0 per cent up to 24 months if you have a good credit history.”
Customers will be able to view and manage their activity via the card app, which will include features such as reminders and alerts to keep payments on track, and a simple view to show exactly what’s going on each month.
Virgin also says the new BNPL card will enable customers to boost their credit score – although they will need to manage it responsibly.
But Emily Herring, credit and loan publisher at comparison site Finder, questions whether encouraging young people to spend more during a cost-of-living crisis is the responsible thing to do.
The BNPL can be a convenient tool for responsible borrowers who understand that they are still taking out a loan, however, this is not always the case and many find themselves paying more in interest.
“It is interesting that Slice is focused on helping boost credit scores with a ‘fully structured’ BNPL product, which is a unique feature that we don’t see many BNPL lenders freely touting.
But, is it a little unsettling that we’re encouraging Gen Z to shop more during a cost-of-living crisis when they’re not facing inflation at its height.
BNPL products can be a convenient tool to help spread the cost of purchases to responsible borrowers who understand that they are still taking out a loan, however, this is not always the case and many find themselves paying more in interest.
“On the flip side, can late or missed payments negatively affect a borrower’s credit score?”
What do other banks do?
Virgin Money joins a number of big names already dipping their toes into the BNPL market.
NatWest offers its checking account customers the ability to make a BNPL purchase virtually anywhere Mastercard is accepted on items costing over £50, with a maximum credit of £1,000.
Customers can spread the cost of purchases over four monthly installments at 0 percent interest and no fees when paying on time.
Available through the bank’s mobile app, HSBC’s BNPL offer enables eligible credit card customers to convert recent spending into bespoke installment plans – splitting purchases of as little as £250 into three, six or 12 equal monthly payments.
On the record: Virgin says its new BNPL credit card will enable customers to boost their credit score — though only if used responsibly
Although the payments are interest-free, using the service comes with a monthly fee starting at £1.67, according to HSBC.
App-based bank Monzo also allows customers to pay for items costing more than £30 in installments with any retailers that accept Mastercard.
Payments are interest-free in three installments, or for those who need more time, they charge 19 percent APR for 6- and 12-month payment plans.
At the end of last year, Barclays also launched a new flexible payment method, enabling Amazon shoppers to spread their purchases across a number of payments.
Barclays Installments will allow Amazon shoppers to split purchases of £100 or more over three to 48 months, although the minimum monthly payment is £15.
Barclays will also charge 10.9 per cent APR on these purchases, although promotional rates and interest-free financing may be available at certain times.
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