Over the previous handful of years, the Buy Now Pay Later (BNPL) has develop into a prominent financing kind. In India, the demand for BNPL has been expanding for about 2-3 years, additional accelerated by COVID-19. BNPL has emerged as a more practical payment technique primarily decreasing the monetary burden on borrowers by providing no-price EMIs.
According to Goldman Sachs, the Indian e-commerce sector is poised to develop into a $99-billion market place by 2024, driven by customer demand. At the similar time, sector professionals say, BNPL will develop into the quickest expanding on the web payment technique, from a 3 per cent share in 2020 to 9 per cent in 2024.
A Q4 2020 BNPL survey predicted that BNPL would develop by 65.5 per cent in India, reaching a worth of $11,570.7 million in 2021. The adoption of this payment mode is anticipated to rise at a 24.2 per cent CAGR from 2021 to 2028, taking the gross merchandise worth of BNPL in India to $52,827.2 million by 2028, from $6,990.5 million in 2020.
BNPL boosts conversion prices and typical order values (AOV) for merchants by lowering shoppers’ buy hesitation. It is anticipated to continue to rise in reputation as a payment technique with advantages for all players. For instance, Flipkart not too long ago expanded its Flipkart Pay Later services to make credit accessible not just on the platform but also on other companion channels, related to other BNPL service providers Paytm Postpaid and Amazon Pay.
How do BNPL offerings work?
The core tenet of BNPL service is that it enables one to spend overtime – but afford what to obtain, today. The credit period for BNPL services ranges from 30 days to 36 months, based on the transaction size. Similarly, the credit quantity also depends on the lender – for instance, though Flipkart delivers a seamless checkout approach for up to Rs 10,000, beneath their BNPL services, ZestMoney, one more BNPL lender, delivers up to a personalised limit of Rs 60,000.
Gaurav Hinduja, Co-Founder and MD, Capital Float, says, “BNPL is growing in popularity because it delivers a seamless shopping experience to customers. As a 100 per cent digital solution, BNPL facilitates a speedy one-click checkout process.” To avail of the BNPL services, the purchaser desires to sign-up after at checkout and can proceed to use the remedy when buying across different brands and merchant web-sites. BNPL is typically low price or no price financing with a versatile repayment schedule.
How is BNPL diverse from credit cards?
The principal feature of the ‘Buy now pay later is it is a one-click credit facility service available on checkout on merchant apps and websites. With BNPL, one can avail of this short-term credit option to make instant purchases and pay for them at a later date.
Here is how BNPL differs from credit cards:
Transparent and low-cost pricing model: BNPL usually follows a transparent and low-cost pricing model because a lot of the offers are subsidised by brands so that the customer gets the best value of the offering. Lizzie Chapman, CEO and Co-founder, ZestMoney, says, “Unlike credit cards that are meant to deceive the customer with hidden charges and exorbitant interest rates, BNPL is transparent. The customer knows exactly how much he/she will be paying.”
Completely digital and instant sign up process: Anyone sitting in any part of the country can sign up and avail of the service. Credit Cards on the other hand require weeks and a lot of paperwork. With digital KYC, one can get instantly approved and start transacting.
More accessible: When compared, experts say, credit cards are for high CIBIL customers, people in metros and salaried folks. Only 30 million people in India use credit cards. Chapman of ZestMoney adds, “BNPL by nature is designed for a much bigger market, including new to credit customers or people with insufficient credit history. Most BNPL players use an alternative data and proprietary model to approve these customers. Also, Indians are leapfrogging credit cards to BNPL.”
Higher interest rate – Credit Cards or BNPL providers
It’s a nicely-recognized reality that credit cards are the most high-priced kind of credit. Interest prices on missed payments can go up to 48 per cent, whereas BNPL businesses charge about to 24 per cent interest price based on the merchant, tenure and the borrower.
Why are BNPL services gaining more attraction as compared to Credit cards? Why do youngsters locate BNPL desirable?
Nitya Sharma, CEO and Co-Founder, Simpl, says, “Indian consumers, like all consumers, seek trust and transparency in their transactions – something that is in huge deficit when it comes to traditional credit cards. There is a clear reluctance in consumers towards using credit cards and the biggest source of the disinclination comes from the ‘hidden charges’ or the various transaction fees a credit card company charges its customers.”
He additional adds, “Annual maintenance fee, cash advance fee, surcharges on petrol, and GST charges are just some of the extra costs a user incurs for using a credit card. Paying at the time of delivery builds trust in the transaction and cash on delivery is a true 1-click checkout and this is what BNPL services offer consumers.”
The BNPL service is totally digital, on the web and immediate. It is less complicated, faster to apply and get approvals. There is no will need for an agent to come more than for paperwork.
Hinduja of Capital Float says, “The merits of BNPL such as easy registration, the convenience of use and quick check-out, speak directly to the digital-savvy, card-averse customers who demand speedy and convenient small credit at their fingertips. Millennials use BNPL not only to buy essentials but also to fulfil their aspirations, such as pursuing an upskilling course or travelling to a dream destination.”
The Red Flag
Even with all the advantages and desirable features, sector professionals say clients need to be cautious though availing of the obtain now spend later service.
Though it differs from one lender to one more, late charges or penalties as one-time charges are charged, which are typically not compounded, a stark distinction from credit cards. It is vital to note that BNPL is primarily nonetheless a loan and for that reason BNPL providers can report one’s repayment behaviour to the credit bureaus.
Experts say, just like any other loan, it will nonetheless fall upon the buyer to make repayments promptly to retain a healthful credit score given that most BNPL providers report repayments to credit bureaus.