Co-Brand Credit Cards vs. Buy Now Pay Later Products

Consumers appreciate the flexibility of BNPL, but co-brand credit cards generate a real connection between retailer and consumer.
August 15, 2023

In today’s consumer finance landscape, various payment options have emerged to cater to consumers’ and merchants’ needs and preferences. Two popular alternatives are co-brand credit cards and buy now-pay later (BNPL) products. While both offer convenience and flexibility, it’s crucial to understand their differences and the value they bring to consumers and merchants. This blog post will explore these distinctions and shed light on each option’s benefits.

Co-Brand Credit Cards

Co-brand credit cards involve a financial institution and a specific brand or retailer partnership. These cards incentivize brand loyalty and offer consumers exclusive rewards, benefits, and discounts. Let’s take a closer look at the value co-brand credit cards provide.

4 co-branded credit cards from Cardless

Consumer Value:

  • Rewards and Benefits: Co-brand credit cards often come with attractive reward programs, such as cashback, loyalty points, or discounts on purchases made at the partnering brand or retailer. These rewards can be redeemed for future purchases, travel, or other desired goods and services.
  • Brand Affiliation: Consumers use a co-brand credit card to showcase their support and affinity for a brand. This affiliation can enhance their overall shopping experience and reinforce their loyalty to the brand.
  • Enhanced Purchasing Power: Co-brand credit cards provide consumers with a revolving line of credit, allowing them to make purchases even when their immediate funds may be limited. This flexibility can be precious for larger purchases or unexpected expenses.

Merchant Value:

  • Brand Loyalty: Co-brand credit cards foster customer loyalty by incentivizing repeat business through exclusive rewards and benefits. This loyalty can translate into higher customer retention rates and increased sales for the merchant.
  • Increased Sales Volume: With co-brand credit cards, consumers often feel more encouraged to purchase due to the added benefits and discounts associated with their cards. This increased spending can lead to higher transaction volumes and a boost in revenue for the merchant.
  • Data and Insights: Co-brand credit cards provide merchants valuable data and insights into customers’ purchasing behavior. This data can help them better understand their target market, tailor their offerings, and improve their business strategies.

Buy Now Pay Later (BNPL) Products

BNPL products have recently gained popularity as an alternative to traditional credit cards. These solutions allow consumers to split their payments into installments over time, often without interest charges or credit checks. Let’s delve into the value BNPL products offer:

Consumer Value:

  • Flexibility and Convenience: BNPL products enable consumers to purchase and spread the payments over a set period, making higher-priced items more affordable. This flexibility helps manage cash flow and provides budgeting options.
  • Interest-Free Options: Many BNPL services offer interest-free periods or zero interest charges, making them an attractive option for those who want to avoid incurring credit card interest fees.
  • Simplified Checkout Process: BNPL products often streamline the process by eliminating the need to enter lengthy credit card details. This convenience can lead to a smoother shopping experience, reducing friction during the payment process.

While 34% of consumers report using a BNPL option in the last 90 days, 36% say they are wary of using BNPL as a payment option.

J.D. Power: Banking, and Payments Intelligence Report, June 2023

Merchant Value:

  • Increased Conversion Rates: BNPL options can lead to higher conversion rates for merchants, as consumers are more likely to complete their purchase when given the flexibility to pay over time.
  • Attracting New Customers: BNPL providers often have large user bases, and partnering with them can help merchants tap into a broader customer pool and attract new buyers who may prefer the convenience of installment payments.
  • Mitigating Fraud and Risk: BNPL providers assume the associated risk.

The transaction reduces the burden on merchants regarding chargebacks, fraud prevention, and payment disputes.

Comparing the Options

Customers who use a BNPL option are fundamentally customers of the BNPL provider first. While 34% of consumers report using a BNPL option in the last 90 days, 36% say they are wary of using BNPL as a payment option. Customers appreciate the flexibility, but it does not engender loyalty. Merchants pay a high up-front fee to use BNPL, typically higher than the credit card network’s merchant discount fees.

In comparison, a co-brand credit card generates a real connection between the retailer and the consumer. Co-brand cards can operate with unique loyalty benefits, extended payment terms, or special financing. Modern digital first issuing technology allows co-brand cards to be instantly usable. 

In the past, building a co-brand card was very challenging due to the speed of large credit card issuing banks and inflexible technology. As a result, recent years have seen more engagement with BNPL, which retailers implement as a button on a checkout page. BNPL is hard to implement for omnichannel retailers, where the opportunity to present alternative financing at the point of sale can substantially slow down checkout lines.

Thanks to providers like Cardless, the time to market and complexity of building and launching a co-brand card program has been reduced dramatically. Cards are a winning option due to both the long-term relationship nature and the ability of cards to easily bridge the online-offline gap.

There are appropriate times and places for both types of payment options. Different customer situations demand other solutions. Intelligent retailers will invest in co-brand cards that deepen their relationship with users and enable a comprehensive integration with their loyalty program.

If your retail brand wants to enhance its long-term relationships with its customers, contact Cardless today.

Cards issued by First Electronic Bank, Member FDIC, and powered by Cardless. 

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