Digital Transactions Authoritative, insightful and timely information for payments professionals
Buy now, pay later provider Zip Co. Ltd. is telling users it no longer will allow them to tap credit cards as a funding source.
In an email this week, Zip says, “Starting in the next few weeks, you won’t be able to initiate new purchases through Zip using a credit card. We know this might be an adjustment, and we appreciate your understanding as we make this change.” The only other option for Zip U.S. users is a debit card.
Australia-based Zip did not provide an explanation for the move, though in 2021 rival Afterpay, now owned by Block Inc., said 90% of its transactions were made with debit cards. BNPL plans are paid via funding account, often a debit or credit card or a bank account.
Zip may be the only U.S. BNPL platform to prohibit credit cards as a funding source. A Digital Transactions News review found that others, including Affirm, Afterpay, Klarna, and Sezzle, allow both credit and debit cards, with some also accepting bank accounts as a payment source. On the issuing side, Chase and Capital One block their credit cards as BNPL sources. Chase in 2020 launched its own BNPL service, My Chase Plan, now called Pay in 4.
“Most BNPL purchases funded with debit cards,” Ariana-Michele Moore, strategic advisor for retail banking and payments at Datos Insights, tells Digital Transactions News. Zip’s move could have been influenced by lower processing costs for debit cards compared to credit cards, Moore says.
BNPL has proven popular, especially among younger consumers. Some 42% of Gen Y and Gen Z consumers use BNPL products, compared to 21% of consumers from other generations, according to a recent J.D. Power report. Generation Y is also known as millennials.
A Consumer Financial Protection Bureau report in January found that BNPL plans are popular with consumers who have subprime or deep subprime credit scores. Some 45% of BNPL loans made from 2021 to 2022 went to those with deep subprime scores, while consumers with subprime credit scores took out 16% of BNPL loans, the report says.
