BNPL Providers Building Rewards Programs to Compete

Recently, with several buy now/pay later (BNPL) fintechs’ valuations having collapsed and a proposed merger falling through, many BNPL providers are launching rewards programs. Although the dollar value of rewards for smaller BNPL purchases is less than that of credit card loyalty programs, which can provide two to five percent cash back for purchases in certain categories, even a minor reward can appeal to consumers who may not have access to credit card perks.

“Rewards could play an important role in marketing BNPL services to underbanked people who aren’t accustomed to earning any rewards,” said Rutger van Faassen, an analyst with market research firm Curinos, according to American Banker.

Many BNPL lenders are rewarding customers for making payments on-time. Klarna offers rewards for purchases at places like Walmart and Starbucks, while Afterpay customers can use points for discounts at certain retailers and make BNPL purchases with no upfront payments.

Merchants have noted that credit card rewards are a burden, funded by interchange rates that the networks establish. Ben Mackinnon, CEO of New York startup Kard, said that merchants see rewards as a benefit, associated with virtual debit cards and with or without installment-loan financing.

“It costs less for merchants to support [lower-rate] debit card rewards versus credit cards, and BNPL rewards programs can be structured to drive business back to merchants,” he said.

Additionally, some credit card users are earning rewards by making purchases with certain BNPL loans during promotions. While rewards can help drive ongoing usage, they can also pose risks to cash-strapped consumers balancing several installment loans, some have warned.