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Gifting season: Payments and beyond

By Puja Sharma

December 20, 2021

  • alternate payments
  • Amazon Pay
  • BNPL
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 The gifting season is upon us and as the bigger holidays such as Christmas and New Year are around the corner, people today are ditching the traditional way of payments–credits cards and are moving towards affordable payments such as BNPL.

The idea of gifting and payments are changing, here’s how.

Many factors have accelerated the demand for online shopping including the Covid-19 outbreak. It also changed consumer behaviour, people losing jobs, and a sudden health crisis– triggering them to take more instant loans compared to the last few years.

Holiday Loans

Personal loans that one can use to pay for holiday-related payments–including gifts, travel, and large meals are called holiday loans. These loans are typically unsecured and have a fixed interest rate, repayment term, and monthly payment.

While some lenders may require you to secure larger loans with collateral, such as a vehicle. Most holiday loans are unsecured and don’t require collateral as long as you meet the lender’s qualifications. A person’s income and credit rating typically affect your interest rate, loan amount, and ultimately your monthly payment.

Fast forward to now, with cheaper, and no interest charged– BNPL has taken the market by storm.

Chronology of holiday gifting and payments

Debit Cards: Money comes directly into a person’s account through a source of income or transfer of money, among others. The money is deducted instantly through payments.

Credit Cards: A credit card is an instrument to help you make instant credit-based transactions. It offers the user the flexibility to make transactions on credit independent of your account balance. However, it charges high-interest rates. Hidden costs and a minimum overdue are a few of its disadvantages.

Store Cards: They can be used to make payments in a particular retail store. Store cards too, charge high-interest rates.

Buy Now Pay Later: BNPL is an agreement where a consumer can buy the product first and pay for it later with no interest rates, or nominal interest rates later on if one fails to pay back on time.

Amazon Pay: For amazon pay, one needs to have an Amazon account, and can pay while on the platform. It uses the information and payment methods stored in your Amazon account.

Google Play: An contactless payment, can be used anywhere. Credit card or debit card info is required.

What now?

With the recent announcement from the E-commerce giants such as Amazon, that it would stop accepting Visa credit cards issued in the UK from January 2022, citing high fees charged for transactions could cause a rippling effect for the smaller e-commerce platforms, pushing them to introduce BNPL or its own credit/payment system on their platform.

According to a report that Mastercard raised its fees from 0.3% to 1.5% for consumers using a UK credit card to buy something online from Europe. Similarly, it increased its debit card fees from 0.2% to 1.15%. Visa subsequently also raised its fees from 0.3% to 1.5% from October.

With LendTech garnering popularity, millennials are looking for cheaper, low credit risks payments. Buy Now, Pay Later functionality has become increasingly common across the younger generation/millennials. Hence, much of the growth of BNPL to this point has seemingly been driven by younger shoppers.

Report gathered insights from Klarna’s consumer research that was conducted across the US, the UK, Austria, France, Germany, Belgium, the Netherlands, Norway, Sweden, and Finland. The research was conducted during October and November this year and included a minimum of 1,000 respondents in each country.

Klarna found that UK consumers were increasingly looking for ‘better value’ alternatives to traditional credit that could give them more autonomy over their finances, such as buy now, pay later (BNPL).

Figures from the report detailed that BNPL consumers were found to be much better at budgeting and planning for their holiday shopping, with 6 in 10 BNPL consumers having an overall budget set for their holiday shopping, compared to 42% of those who had never heard of BNPL.

As per the media report, For example, 12% of the 18-34 years old demographic surveyed said they are using buy now pay later for holiday purchases. In comparison, 0% of the 65 and older group reported they would use BNPL for holiday purchases.

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