American Express fights back against buy now, pay later firms… by launching its own version

American Express has launched its own version of buy now, pay later called Plan It. 

The new feature for existing credit card customers allows them to pay off purchases split into three, six or twelve instalments for a set monthly fee. 

The purchase must be a minimum of £100, or else put in a set amount of the cash they owe on the credit card overall. 

Plan It: American Express has jumped on the BNPL bandwagon, but its new Plan It feature does not leave customers much better off than just using a credit card

That set amount can be up to 85 per cent of a customer’s monthly statement. For example, if in a month a customer spent £1,000 on their card, they could put up to £850 in Plan It.  

American Express does not charge interest for using Plan It, but customers are charged a fixed monthly fee for the instalment plan.

This fee depends how much you are paying back over how long. 

The Amex Plan It calculator on its website assumes your credit card has an interest rate of 30 per cent, but you may be charged less or more depending on your card’s APR. 

You can see how much you would have to pay back against how much you borrowed. 

The amount customers need to pay back each month will be inclided in the minimum due’ figure in their American Express statements. 

For example, if you spread a £100 balance over 12 months using Plan It, monthly repayments are £9.40 a month, made up of an £8.33 monthly plan amount and a £1.07 fee, totalling £112.80.

If you had no instalment plan, the average monthly card repayment would be £9.56.

That comprises a monthly card amount of £8.33 and average monthly interest of £1.23, totalling £114.72.

So the amount a customer can save with Plan It is small compared to just using a credit card.

Instalment plans can be set up from the American Express app, or in an American Express customer’s online account. 

Once set up, the instalment plan is automatically included in the ‘minimum due’ payment each month.

How does BNPL work?

BNPL is a borrowing method that allows you to make a purchase via a loan provided by a third party. 

It is commonly used when shopping online and popular providers include Klarna, Clearpay and Afterpay.

Last week, BNPL giant Klarna suffered its fifth straight annual loss ahead of a possible stock market listing, posting losses of £190million for 2023, narrower than its £800million loss in 2022.

You pay off a BNPL loan either in several equal payments or in one go after a fixed period. Often the loan is interest free for an initial period.

As with any borrowing, using BNPL comes with risks. Unlike applying for a personal loan or credit card, BNPL providers often do not run a credit check on customers, meaning vulnerable users and those with a bad credit history could find themselves saddled with even greater debt.

This is especially true for those without a regular income, who may find themselves unable to pay off the loan, exposing them to high interest payments.

What should I watch out for when using BNPL?

One dangerous habit to look out for is using BNPL to pay for everyday goods, such as your weekly supermarket shop. 

This is because using BNPL regularly increases the risk of missing payments and incurring interest.

Gen Z (aged between 11 and 26) and millennials (27 to 42) are four times more likely to take on debt to meet rising costs, data from broker Credit Karma shows. 

Losing track of how much you owe to BNPL providers, or the dates payments are due, can also be warning signs to cut down on using it.

Ricky Bonham, vice president of American Express, said: ‘We know our cardmembers value flexibility, including in how they pay.

‘With Plan It, our credit card customers can now pay at their own pace, continuing to earn rewards as they do so on everything from a new vacuum cleaner to their next big holiday. 

‘As a business regulated by the Financial Conduct Authority, we’re also delighted to be launching an instalment plan that offers transparent fees and no hidden charges.’