What is BNPL and how is it different from bank installments

[Cloned Boy]

How do BNPL services work?​

I saw that online stores, marketplaces, and even physical cash registers started offering to split the payment into parts. Is this the same as a regular installment plan from a bank? Does such payment affect your credit history? What happens if you miss a payment?
The service you are talking about is BNPL services, which allow you to pay for goods in installments.
The main advantage of classic BNPL services with four payments is that the purchase can be made without additional interest and commissions. Some services sometimes charge a commission, but this usually applies to options with more payments: for example, when the amount is divided not into four, but into six parts.
BNPL is not an installment plan or a loan. That is, you do not need to sign a loan agreement, and the service will not check your credit history. At the same time, the service is usually provided for short periods and amounts - usually up to $1000.

What is BNPL​

BNPL is a service that allows the buyer to pay part of the cost of the goods immediately and the rest later, over a short period of time. The main difference between BNPL and bank installments is that you do not need to sign a credit agreement, and the registration is quick and without long questionnaires.
BNPL services do not request credit history or income information. And as an agreement on the websites of such services, there is a public offer - it is called an agency agreement. In Tinkoff Bank's "Share" service, for example, the offer is considered accepted from the moment of registration.
To apply for BNPL, you only need your full name, phone number, and payment of part of the cost of the goods at the time of purchase - from a card of any bank.

How BNPL services work​

To buy something through a BNPL service, you need to find a store on the service's website or in the mobile app. You can also check in the store you need to see if it has this service.
Next, you need to go to the company's website, select the desired product or several and add them to the cart. As a payment method, specify payment in installments - as a rule, there are footnotes on the site that tell you more about this.
After that, you need to enter your card details and make the first payment - usually 25% of the purchase price. The remaining three quarters are paid by the BNPL service for the buyer.
The service will then automatically charge the client a fixed payment every two weeks until the entire amount is paid. In the standard version, this will take one and a half months.
Typically, with a classic BNPL with four payments, the service does not charge the buyer any fee for using the service. The commission is paid by the seller, who, thanks to BNPL, can sell more of their goods or services.

Does BNPL affect your credit history ?​

BNPL services do not interact with credit bureaus. Therefore, the client does not need to go through a complex procedure that includes checking passport data, and the use of the BNPL service is not reflected in the credit history.
There is another side effect of contacting the BKI: when you apply for a loan and undergo verification at the bureau, so-called triggers are triggered - many banks and MFIs will immediately learn about your request for a credit history. In this case, a person may be inundated with calls from credit organizations that will try not to miss the client.
In the case of BNPL, there will be no such effect. BNPL providers have their own platform, with which they can assess the payment load for all BNPL. The platform is distributed, and no one has the opportunity to sell any information about the client. Also, BNPL services are not required to transfer information about delinquencies to credit bureaus.
To assess a client’s solvency, BNPL providers use their own methods instead of credit bureaus, focusing on data about the phone number, digital footprint, and purchase history in partner stores.
This differs from the approach when receiving a loan or credit: in this case, the organization is obliged to send a request to the BKI. If it turns out that the person has a large credit load, the organization is obliged to set aside special reserves in case of non-payment of the loan. This is not profitable for the bank, so it is easier for it to refuse the loan.
But, as in the case of a loan, when applying for BNPL, a person needs to independently weigh their financial capabilities and understand how ready they are to take on new obligations and whether they can cope with the payments.

What to look for when applying for BNPL​

When applying for BNPL, it is important to check who exactly you will be paying. In some cases, the service is provided by a bank, in others - a BNPL service, in others - an MFI . Information can be checked by the company name.
For example, there are those that try to appear to be BNPL services, but in fact offer classic bank installments - with all the ensuing consequences: checking the credit history and solvency of the potential borrower, concluding an agreement and transferring information to the credit bureau.

How payment frequency is set. Each service has its own frequency of payment debits. For example, the service "Dolyami" splits the purchase amount into four payments: the first is debited at the time of purchase, the rest - in three payments every two weeks.
Yandex Split has two payment formats, which you need to choose at the time of purchase:

1. Classic BNPL without commission - payment for the goods must be made over two months in equal payments every two weeks without interest.
2. With a commission, the entire amount must be paid within four or six months, and the cost of the purchase itself will be higher.

What amount should be in the account at the time of payment. Since money is debited automatically on payment dates, it is important to monitor that the required amount is in the account on the appointed day. Some services send reminders, but it is better to control this yourself just in case. If you want to change the card from which the payment is debited, as a rule, this can be done in the service application.
If the linked card does not have the required amount, the BNPL service can write off the money from another card. For example, Yandex's Split can use another card for this, the details of which are in Yandex-ID, and Tinkoff's Dolyami can use the details of the card you linked earlier.
What are the conditions for late payment? It is better to find out in advance what penalties are provided for late payment. For example, in case you accidentally forget about the payment.

Is BNPL Worth Using?​

From the consumer's point of view, the BNPL service is a convenient way to quickly get the necessary goods without overpaying, confirming income, or having to sign documents: a phone number and a one-time payment of part of the amount are enough. This allows you to plan your budget and makes shopping more comfortable.But the buyer needs to evaluate his own capabilities and financial burden.
It is also important to consider that the conditions of all BNPL services are different. It is worth carefully studying the offer of the service you decide to use.
For stores, the benefit is in increasing the average check. At the same time, they do not risk anything: the BNPL service immediately transfers the full cost of the goods.
The services themselves earn money from the commission they receive from the seller of the goods.

Differences between BNPL and installment payments​

Installment plan	BNPL service
Need to sign a contract	Full name and contact information are sufficient
You can pay in cash or by card	You can only pay by card
May be offered for expensive purchases, including real estate	Usually offered for small amounts
There is a solvency check	The service does not ask for proof of income
Installments are offered for 6, 12 and 24 months	Usually offered for a short period - up to 2 months. For a longer period there may be a commission
The first payment can be 30+ days after purchase	Part of the purchase must be paid for immediately
It is possible to reduce the payment amount by partial early repayment	The terms of early repayment depend on the service: in some cases, you can only pay the entire amount at once, in others - a scheduled payment. As a rule, this does not affect the amount of the regular payment
One store can offer installment plans from several lenders at once	The service may only be available in specific stores.
Overdue - from the first day of delayed payment	Each service has its own terms of delay.

Differences between BNPL and installment payments​

Installment plan	BNPL service
Need to sign a contract	Full name and contact information are sufficient
You can pay in cash or by card	You can only pay by card
May be offered for expensive purchases, including real estate	Usually offered for small amounts
There is a solvency check	The service does not ask for proof of income
Installments are offered for 6, 12 and 24 months	Usually offered for a short period - up to 2 months. For a longer period there may be a commission
The first payment can be 30+ days after purchase	Part of the purchase must be paid for immediately
It is possible to reduce the payment amount by partial early repayment	The terms of early repayment depend on the service: in some cases, you can only pay the entire amount at once, in others - a scheduled payment. As a rule, this does not affect the amount of the regular payment
One store can offer installment plans from several lenders at once	The service may only be available in specific stores.
Overdue - from the first day of delayed payment	Each service has its own terms of delay.

What's the bottom line?​

BNPL services offer to pay for purchases in installments over a period of up to six months. The service is offered for small purchases - usually with a check of up to $1000: clothes, shoes, cosmetics.
The key differences between BNPL and bank installments are: there is no need to sign a loan agreement, there is no exchange of information about the buyer with the credit bureau, and the service itself is provided for a shorter period.
When applying for BNPL, it is important to study the payment schedule and offer in order to know all the terms of the service.