Virgin Money is launching its own buy now, pay later credit card aimed at Generation Z borrowers, which will allow them to spread the cost of purchases over up to six months interest-free.
The challenger bank’s Slyce card will allow customers to split payments over up to 12 months, with no interest charged for the three and six-month options.
The move by Virgin Money is yet another sign that big banks are becoming increasingly keen on offering 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, pay later
Prior to Virgin, NatWest, HSBC and Monzo have all announced their entry into the BNPL market.
BNPL lets shoppers stagger payments for goods, often with no interest or charges unless they fail to pay back on time.
The flexible payment method has soared in popularity over recent years, with Citizens Advice estimating that 14million Britons used BNPL services during the first year of the pandemic.
More recently it also claimed that one in 12 people are now using BNPL to cover basic costs such as food shopping.
Virgin Money’s BNPL product will mean customers can choose how to pay their monthly credit card balance.
They can either pay off the full amount or pay in three, six, nine, or 12 month instalments to suit their budget.
It 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 has been designed and built with a 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 proper credit and affordability checks.
Andrew Hagger, personal finance expert from Moneycomms says: ‘It’s inevitable that traditional lenders in the personal finance space will want a piece of the burgeoning BNPL market, so no surprise to see Virgin launching this product.
‘It’s regulated which is a positive start, plus it will allow borrowers to keep all their BNPL activity 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?
Although Slyce’s three or six month repayment plans will be fee-free, for longer plans of 9 or 12 months, an installment fee will be added.
Virgin’s installment fee will be a percentage of the total purchase price. For nine monthly payments, a 7.5 per cent fee will be added, and for 12 monthly payments, a 10 per cent payment fee will be added.
Hagger adds: ‘Borrowers who repay short-term can do so without cost and the fees for 9 and 12 month borrowing are not overly costly.
‘However a 0 per cent purchase credit card would be a cheaper alternative if you want to borrow longer term.
‘M&S Bank, MBNA, Sainsbury’s Bank and Barclaycard all currently offer 0 per cent up to 24 months if you’ve got a good credit record.’
Customers will be able to view and manage their activity via the card’s app, which will include features such as reminders and alerts to keep payments on track, and a simple view to show exactly what is going out each month.
Virgin also says the new BNPL card will enable customers to boost their credit scores – though they would need to manage it responsibly.
But Emily Herring, credit and loans publisher at the comparison site Finder, questions whether encouraging young people to spend more during a cost of living crisis is the responsible thing to be doing.
BNPL can be a convenient tool for responsible borrowers that understand that they are still taking out a loan, however, this isn’t always the case and many do find themselves repaying more in interest
‘It is interesting that Slyce has a focus on helping boost credit scores with a “fully regulated” BNPL product, a unique feature that we don’t see many BNPL lenders promote so freely.
‘But, is it slightly worrying that we are encouraging Gen Z to shop more during a cost of living crisis when they are yet to experience inflation at its heights.
‘BNPL products can be a convenient tool to help spread the cost of purchases for responsible borrowers that understand that they are still taking out a loan, however, this isn’t always the case and many do find themselves repaying more in interest.
‘And on the flip side, could late or missed repayments negatively impact the borrower’s credit score?’
What are other banks doing?
Virgin Money joins a number of big names already dipping their toes in the BNPL market.
NatWest is offering its current account customers the ability to make a BNPL purchase almost anywhere that accepts Mastercard on items costing over £50, with a maximum credit limit of £1,000.
Customers can spread the cost of purchases over four monthly instalments with 0 per cent interest and no fees when if they pay on time.
HSBC’s BNPL offering is available through the bank’s mobile app, and enables eligible credit card customers to convert recent spending into bespoke instalment plans – dividing purchases of at least £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 scores – though only if they use it 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 enables customers to pay for items costing over £30 in installments with any retailers that accept Mastercard.
Payments are interest free over three instalments, or for those requiring more time, it charges 19 per cent APR for 6 and 12 month repayment plans.
At the end of last year Barclays also launched a new flexible payment method, enabling Amazon shoppers to spread their purchases over a number of payments.
Instalments by Barclays will allow Amazon shoppers to split purchases worth £100 or more across 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.