Buy Now Pay Later (BNPL) has grown to become a prominent form of financing over the last ten years, especially with BNPL specialists such as Affirm and Klarna gaining popularity. In India, the demand for BNPL has been growing for about 2-3 years, further accelerated by COVID-19. The pandemic-induced economic changes drove people to look for ways to fund their purchases, including essentials. BNPL emerged as more than a convenient payment method; it essentially decreased the financial burden on borrowers by offering no-cost EMIs.
The Pandemic Propelled a New Trend
Consumer demand for e-commerce services increased due to the lockdowns. BNPL helped customers break down large expenses into smaller, interest-free EMIs, rather than having to dig deep into their wallets. BNPL not only eased purchases of daily essentials but even brought aspirational products within reach.
Trends and projections indicate a bright future for the symbiotic relationship between e-commerce and BNPL. Driven by consumer demand, the Indian e-commerce industry is poised to grow to become a $99 billion market by 2024, says Goldman Sachs. At the same time, BNPL will become the fastest growing online payment method, from a 3 per cent share in 2020 to 9 per cent in 2024.
A Popular Trend Among the Youth
India is home to one of the world’s biggest millennial and Gen Z populations. These demographic groups are increasingly contributing to the exponential use of smartphones and choose seamless digital payments.
BNPL is a quickly and easy solution for all these shoppers. The registration approach is basic and can be initiated and completed through checkout on e-commerce web pages. Customers acquire actual-time approval and do not have to deal with cumbersome paperwork. These merits speak straight to young folks, who are digital natives and are accustomed to lightning-fast speeds and comfort at their fingertips.
As becoming card-averse, these folks gravitate towards virtual credit possibilities. Various statistics reflect a reduce allure of credit cards in the US and Europe’s millennial population.
Most importantly, BNPL provides a formal micro-lending item in an informal, user-friendly manner. It is an agile answer that appeals to today’s youth, recognized for their need to have for immediate gratification. Also, with BNPL, the monetary burden that lots of households face through the festive gifting season is lowered. They can make the purchases they need, paying for them by way of effortless, modest, no-price EMIs. No obtain is also modest for BNPL.
An Ongoing Growth Story
BNPL boosts conversion prices and typical order values (AOV) for merchants by lowering shoppers’ obtain hesitation. BNPL is anticipated to continue to rise in reputation as a payment strategy with advantages for all players.
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.
The Path to Financial Inclusion
Due to low credit card penetration in India, supplemented by traditionally strict eligibility criteria to avail formal finance, there exists a sizable below-served population with small or no credit histories. This predicament perpetuates a cycle wherein men and women searching for formal credit are turned down due to unavailable or inadequate credit scores. With BNPL relying on option information sources for underwriting, new-to-credit consumers are integrated into the country’s formal monetary ecosystem.
The move to digital options is anticipated to rise by way of this decade. And, with the accelerating penetration of smartphones and world-wide-web connectivity across India, the attain of BNPL payment providers is only probably to develop.
by, Ankit Satsangi, Chief Risk Officer, Capital Float