'BNPL 2.0' from Zilch launches in US with cash-back rewards, no late fees: Here are the details

Zilch's 'BNPL 2.0' partners with consumers rather than retailers

A new BNPL service launching in the U.S. won't be charging late fees and is offering cash-back rewards to its users.

Buy now, pay later (BNPL) platform Zilch has launched a "2.0" business model in the United States that won't charge late fees or penalties, and offers cash-back rewards to consumers.

According to a BusinessWire press release, "Zilch is accepted everywhere Mastercard can be used" and has more than 150,000 customers who are pre-registered for its service. Its customer base has reached more than two million in the United Kingdom since launching nearly two years ago. Zilch's new model is also aimed at addressing some risk factors of BNPL that were investigated by the Consumer Financial Protection Bureau (CFPB) at the end of 2021.  

The CFPB sent out orders to providers Affirm, Afterpay, Klarna, PayPal and Zip in December of last year to collect information on the risks and benefits of BNPL, citing concerns that their business models were unclear to consumers, charged fees that were too high and allowed Americans to rack up too much debt without being able to repay it. Zilch's new BNPL model would offer 2% instant cash-back rewards and would work directly with consumers, rather than partnering with retailers while charging zero interest and zero fees.

"[Consumers] are being set up to fail and need more flexibility, especially during a cost of living crisis and a time of surging inflation, to pay for goods and services how and when they want – with a system that avoids late payments and unnecessary, onerous fees," Zilch CEO and Co-Founder Philip Belamant said in a statement.

If you have accumulated debt through multiple BNPL purchases and are struggling to pay them back down, consider using a personal loan to pay down the debt and avoid late fees. Visit Credible to find your interest rate on a personal loan without affecting your credit score.

CFPB OPENS INVESTIGATION INTO BUY NOW, PAY LATER CREDIT PROGRAMS

'BNPL 2.0' could create a safer lending option for consumers

BNPL providers partner with retailers to allow shoppers to split the cost of their online purchases into multiple installments at checkout. These interest-free payments are then typically due within a few weeks after the time of purchase. Missed payments, however, can result in late fees or other penalties. The CFPB's investigation was aimed at determining if BNPL programs are doing more harm than good.

"If a consumer has multiple purchases on multiple schedules with multiple companies, it may be hard to keep track of when payments are scheduled," the CFPB previously stated. "And when there is not enough money in a consumer’s bank account, this can potentially result in charges by both the consumer’s bank and the BNPL provider. Because of the ease of getting these loans, consumers can end up spending more than anticipated."

Zilch is using "a blend of Open Banking technology" and soft credit checks alongside its own data to view consumers' financial health. The company is also partnering with Experian to report payment plans, enabling BNPL providers to keep track of their payment plans. The three credit bureaus — Equifax, Experian and TransUnion — recently began calculating BNPL payments when determining a consumer’s credit score.

"The inclusion of point-of-sale loans including BNPL into credit reports and other risk management tools can help tens of millions of consumers gain access to more credit opportunities and potentially secure better loan terms," TransUnion Senior Vice President Liz Pagel said.

If you are interested in paying down your BNPL plans, consider taking out a personal loan to pay down debt. Visit Credible to compare multiple lenders at once and choose the one with the best mortgage rate for you.

BUY NOW, PAY LATER USERS DISSATISFIED, CONFUSED BY SERVICE, SURVEY SAYS

Consumers paid $120 billion in late fees to BNPL providers in 2020, Zilch says

Late fees on BNPL products continue to accumulate, according to Belamant, reaching an "unacceptable" level. He stated that in 2020 alone, American shoppers shelled out $120 billion on such charges. 

"They are being set up to fail and need more flexibility, especially during a cost of living crisis and a time of surging inflation, to pay for goods and services how and when they want – with a system that avoids late payments and unnecessary, onerous fees," he said.

If you are looking for another credit option outside BNPL services, consider taking out a personal loan with a low interest rate. Contact Credible to speak to a loan expert and get all of your questions answered.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.