Builds on the pros and reduces the cons of buy it now, pay later, and credit cards

Builds on the pros and reduces the cons of buy it now, pay later, and credit cards

The goal of any e-commerce merchant when providing a payment method is to make online transactions as simple and convenient as possible for customers. This increases the average order value and reduces cart abandonment. Merchants have an array of choices when selecting payment options, including new funding models like Buy Now, Pay Later (BNPL) and traditional methods like credit cards. Each of these has advantages and disadvantages.

In addition to these popular payment options, digital revolving credit has become an attractive alternative for e-commerce merchants and their customers. This method combines many advantages of BNPL solutions and traditional credit cards while avoiding some of their pitfalls. Before defining digital revolving credit, let’s take a look at the pros and cons of each payment method.

Buy now, pay later as a short-term loan

BNPL programs are primarily structured as short-term installment loans, many of which entice buyers with zero interest rates to attract customers. On the plus side, BNPL solutions are purpose-built for e-commerce and offer instant in-basket funding with very little friction for individual transactions.

Since BNPL providers offer short-term loans, they usually don’t do much credit checking of applicants, if at all. This has led to high default rates and may explain why the financial performance of some of BNPL’s largest suppliers has been suboptimal.

In addition, regulators have become increasingly critical of the ethics behind offering “free” financing to consumers who are likely to take on more debt than they can handle. This regulatory pressure, combined with the economic challenges of offering zero-rate or low-interest financing, has led some to question the long-term viability of this business model.

Conventional and private label store cards – Credit for physical stores

Now let’s look at the more traditional credit card system. On the positive side, private label credit cards and store cards offer long-term revolving credit to consumers. Credit card companies rigorously screen applicants and only underwrite those with a proven credit history and an estimated debt-to-income ratio (DTI). The revolving line of credit can be used and reused without having to reapply.

Unlike BNPL installment loans which fund individual transactions separately, a revolving credit account consolidates all transactions into one consolidated line with a monthly balance and payment plan.

On the “con” side, credit cards were designed for offline retail environments and are not optimized for online transactions. A conventional credit card application often takes hours or days to be approved, unlike the instant approval of BNPL’s online offers. And when it comes to online shopping, the requirement to enter a credit card number and CV code for each transaction is cumbersome. It’s especially a turn off for young consumers who are used to instant self-service. Private store cards share many attributes with traditional credit cards, but have the limitation that they can only be used with merchants who offer them.

Ultimately, neither BNPL installment loans nor traditional credit cards and private label cards offer the optimal online shopping flexibility that discerning consumers demand.

Introducing Digital Revolving Credit: The Best of Both Worlds

Digital Revolving Credit shares many of the attractive qualities of BNPL, including convenient and fast application directly from the e-commerce shopping cart. Completing transactions is also fast and frictionless. Like BNPL, digital revolving credit is specifically designed for use in e-commerce.

One of the main advantages of digital revolving credit is that it is not constrained by a fixed payment schedule. Consumers can structure their payment schedule to meet individual budgets and needs, making it easier to pay regularly. Additionally, because they provide long-term financing for multiple purchases over a lifetime, digital revolving credit providers must adhere to strict financial regulations when it comes to consumer underwriting and registration (this which includes credit checks).

Creating a Digital “Tab”

Here’s another key benefit of digital revolving credit: an account can be opened once and used over and over again indefinitely, as long as the customer remains in good standing. This is attractive to merchants who sell products that lend themselves to repeat purchases or even subscriptions.

In other words, consumers can think of digital revolving credit as allowing consumers to put purchases on a digital version of a “tab”. Monthly installments on the tab are made flexibly based on the buyer’s budget needs, and additional purchases can be added to the tab as long as the credit limit is not exceeded. The consumer does not have to reapply for additional financing each time they wish to make additional purchases. And since digital revolving credit accounts are private, they can provide a line of credit for discretionary purchases separate from family credit card accounts.

Increase customer lifetime value

Compared to typical BNPL installment loans, digital revolving credit allows merchants to build long-term relationships with their customers, incentivizing shoppers to continue using their line of credit on a recurring basis. Rather than “Buy now, pay later”, this method could be more aptly described as “Buy often, pay flexibly”. This approach uniquely maximizes a golden metric of most e-commerce merchants: increased customer lifetime value (LTV). This measures the total potential amount of business a merchant can expect from an individual consumer over the life of the relationship. Digital revolving credit can create a much higher LTV than short-term BNPL installment loans.


Digital Revolving Credit combines the ease of use and modern delivery of BNPL (specifically designed for e-commerce) with the traditional revolving credit model offered by credit card companies. It is a flexible solution that enhances the lifetime relationship between merchants and their customers.

Amanda P. Whitten