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BNPL lender predicts the end of the credit card

Written by: Emma Lunn
Buy now pay later (BNPL) lender Butter has launched a payment card it says is ‘the first nail in the coffin of the credit card’. But do its claims stand up?

Butter’s physical BNPL card will allow users to spread the cost of any purchase anywhere in the world and choose how to split payments across as many as 10 instalments.

The BNPL platform claims consumers are turning to the BNPL sector as an alternative to credit cards, with the sector growing by 65% in the past year.

Butter started life in 2017, first called Pay Monthly Travel, as a service aimed primarily at travellers, allowing them to split the cost of holidays. It changed its name to Butter in July 2020 and launched a checkout credit model similar to rival Klarna, although it still sells holidays payable in instalments. To use Butter, users need to download a mobile app and make purchases through it.

Although Butter advertises an APR of 0%, this doesn’t apply to every transaction, with some purchases having a ‘transaction fee’ instead. This makes the typical APR 33.7% – higher than the average credit card which is about 18%.

The small print on Butter’s website says: “While we make available many 0% APR offers, some purchases carry a transaction fee and an APR; be mindful of this when shopping.

“Representative example: cash price of £100, borrowing £100 over 9 months. The total charge for credit is a £12.90 transaction fee. The total amount payable is £112.90 which you will pay in 10 equal instalments of £11.29 (including the 1st payment at the time of the purchase). Representative APR is 33.7%.”

Butter claims its 0% option is of its most popular services and the typical APR is for its ‘longest product’.

Timothy Davis, co-founder and CEO of Butter, said: “We wanted to create a physical product that transcended the current BNPL boundary between online and physical transactions, providing an additional option for consumers that allows them to buy on credit, without having to use a credit card. So, we launched the UK’s first buy now pay later card.

“Credit cards can be costly but they can also be confusing and we’re never really sure what we owe, when we owe it, and how much we’ll pay for the pleasure. Staying completely on top of your budget is the best way to avoid falling into any financial difficulty as failing to do so can often see a host of additional fees start to ramp up in addition to the interest charged.”

However, despite Davis’ claims that credit cards come with additional fees, he omits to mention that Butter also charges a late or missed payment fee of £12 – these too can rack up quickly if several payments are missed. However, Butter claims it aims to resolve late payments personally with each customer and says it has never charged a customer a late payment fee.

Butter isn’t the first BNPL lender to predict the end of the credit card. Klarna made similar claims earlier this year which were dismissed by financial experts who pointed out that purchases on credit cards don’t attract any interest at all for the first 56 days, with borrowers who always pay off their bill in full each month not paying any interest at all.

Credit card purchases over £100 also receive protection from Section 75 of the Consumer Credit Act if anything goes wrong such as the company going bust or goods not arriving. Purchases paid for by BNPL don’t receive the same financial protection.

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