Buy Now Pay Later (BNPL) is the new kid-on-the-block, when it comes to the financing choices for the borrowers. Besides private loan and credit cards, now borrowers are finding an option solution to meet their brief-term economic requirement. Available largely with the Fintech businesses and some major banks, BNPL could come handy for borrowers searching for credit at low price and higher flexibility.
In an e mail interview with FE Online, Upasana Taku, Co-founder & COO MobiKwik, breaks it down on the working of BNPL, how it differs from credit cards, its crucial features, dangers and watchouts to make the finest out of the new financing solution.
How is the idea of BNPL positioned against credit card usage?
With an beneath penetrated industry and user base of 30-35 million one of a kind-credit-cards, Indian buyers have a massive gap for access to credit. A extremely massive component of the population is underserved or not served by the credit card industry. This is exactly where BNPL comes handy, particularly for customers with poor credit score or no credit history. BNPL enables credit to millions of buyers such as low-revenue groups, self-employed men and women or young workers who are otherwise underserved by credit card businesses, Banks or NBFCs.
According to an market report, BNPL market is estimated to attain US $ 45-50 billion by 2026, with about 80-one hundred million customers surpassing the one of a kind credit card user base. BNPL annual disbursals are also anticipated to develop from about 3% of India’s total credit card spends in Fiscal 2021 to about 15%-20% by Fiscal of 2026.
Whom does it suit to opt for Buy Now Pay Later (BNPL)?
Buy Now Pay Later (BNPL) caters to the unfulfilled needs of a main chunk of Indian society for credit as it gives the comfort of digital payments and benefit of BNPL.
BNPL has numerous positive aspects more than credit cards, on account of getting digital, resulting in low price of operations, as properly as, getting the potential to supply smaller sized ticket size credit, generating it a more scalable and lucrative option more than the conventional credit delivery models. BNPL can also be utilised for each day life use such as groceries, bill payments, electronic purchases, and other essentials and so on.
How does the Buy Now Pay Later (BNPL) credit facility work?
BNPL is an interest absolutely free and a low-price solution and can be activated on the provider’s platform. There are typically two kinds of BNPL merchandise 1) Small ticket credit with an interest absolutely free period and 2) For larger purchases like electronics, customer durables and so on with EMI choices.
How is the maximum eligibility for BNPL arrived at? On what elements does it rely?
Service providers could employ AI and ML based analytics to recognize consumer profile and get greater insights into their purchasing behaviour to figure out their spending limits and assign a credit limit accordingly.
Is the usage of BNPL reported to credit bureaus?
Leveraging the BNPL facility assists customers to make their credit history. It is perfect for men and women with no credit history or a low credit score. In case of any delay in generating a payment for the credit limit utilised, the user’s credit score can be adversely impacted.
How does BNPL influence the credit score/profile of customers?
BNPL’s influence on the users’ credit profile is comparable to any other loan solution. Borrowers are urged to use BNPL judiciously and make repayments on time. BNPL can be a terrific kick-off point for new-to-credit prospects to make their credit history and make them eligible for larger ticket loans or aspiration buys.
What dangers need to customers be conscious of when opting for BNPL?
While prospects typically get to love a minimum interest-absolutely free period, they want to repay the quantity inside this window. If they fail to repay, there could be late costs applicable. Defaulting on the payment can also spoil their credit score and make it challenging for them to apply for larger ticket loans.