Over the last few years, Buy Now, Pay Later (BNPL) has become a famous form of payment in India. This has further been accelerated by the Covid-19 pandemic. It has proven to be more convenient and easy as it reduces the financial burden on borrowers by offering interest-free EMIs.
Buy now, pay later is a type of financing arrangement where customers can make purchases without having to pay the final amount all at once. It is a form of short-term financing. The consumers can pay the amount at a later date in future often without interest.
BNPL arrangements are slowly becoming a very popular payment option. They are also referred to as point of sale instalment loans. Using this option of financing can prove convenient and easy for some customers. This is why it is becoming famous these days. It also has a flexible repayment schedule which makes it even more desirable.
Buy now pay later companies or programs have their own terms and conditions. They are not all the same. However, these are some common lines on which they work.
1. When you purchase something from a retailer, you opt for the buy now, pay later option while checking out.
2. You will be told in seconds whether you are approved to avail of it or not.
3. You make a small down payment, say one-fourth of the total purchase amount.
4. You then pay off the remaining amount in a series of interest-free instalments.
5. You pay it off using a cheque or bank transfer or debit card, bank account or credit card automatically.
The credit period for buy now pay later ranges from 30 days to 36 months. This is highly dependent on the size of the transaction. It also depends on the lender and their terms and conditions. For instance, with Flipkart, a buyer gets an easy checkout process for up to Rs 10,000 as a part of their BNPL services. Zest Money, one more BNPL lender gives a personalised offer limit of Rs 60,000.
Both buy now pay later schemes and credit cards involve deferred payments.
However, in the case of a credit card you have to make a minimum payment due on the card every month. Interest keeps on accumulating on the amount remaining until it is paid off in full. You can even carry forward a balance indefinitely.
In the case of Buy Now Pay Later, no interest or fee is charged. However, there is a strict fixed repayment schedule that is stretched from 30 days to 36 months. It is rather like a consumer loan that is taken without any collateral.
Also, most buy now pay later companies to require a soft credit check for approval. This does not affect one’s credit score. In case of other forms of credit like credit cards or house loans, etc a hard credit check is being done. It might reduce some points from one’s credit score permanently.
In short, buy now pay later is easier than credit cards or other forms of credit payments as it is just a couple of clicks away. Also, it is available on merchant apps and websites. So, this option is much desirable for consumers to make instant purchases and then pay it off over a period of time or at a point in time.
There are various reasons behind its popularity. Let us get to them one by one.
1. BNPL follows a transparent and low-cost business model. A lot of the offers are subsidised by brands. In this way, the customer gets the best value of the deal. BNPL is transparent and has no hidden charges. The user has complete knowledge of what they will be paying and at what date.
This makes it better than a credit card while making an instant purchase.
2. BNPL is a completely digital and instant process. One can get it done just by sitting at their home in any part of the world. With digital KYC, one can even start making the transactions without any hassle.
On the other hand, a credit card will need a long process of paperwork, and credit score check to name among the others. This again helps in the favour of BNPL.
3. Buy Now Pay Later is more accessible. Credit cards are for folks with high CIBIL rate, those who live in metros and those who draw high salaries. This makes buy now pay later more open for the ones who do not fall in any of these three categories. The market for the latter type of people is also very high. So there is a considerable chance that even the folks with a credit card will start using it as it is more accessible and instantaneous. Therefore, it can be concluded that the scope of this industry’s growth is very high.
4. Low-interest rates in buy now pay later schemes. Credit cards are very expensive as the interest rate on missed payments might go as high as 48 per cent. In the case of BNPL, it is 0 to 24 per cent depending upon merchant, tenure and the borrower.
Customers seek transparency, trust and ease in the transaction. In credit cards, there are a lot of hidden payments in the form of annual maintenance fees, cash advance fees, and GST charges.
Goldman Sachs reported that the Indian e-commerce industry is set to become a $99 billion market by 2024 as it has a huge consumer demand. Industry experts also add that BNPL will become the fastest growing online payment method by 2024.
A Q4 2020 BNPL survey reported that this form of payment will grow by 65.5 per cent in India. At the same time, it will reach a value of $11,570.70 million in 2021. The adoption of BNPL will rise from 2021 to 2028 at the rate of 24.2 per cent CAGR.
Thus the gross merchandise value of BNPL in India will increase to $52,827.20 million by 2028 from just $6,990.50 million in 2020.
Flipkart is now eyeing to get into this sector with its Flipkart Pay Later services to make credit easy on the platform as well as other partnering channels. It is quite similar to PayTM Postpaid and Amazon Pay. BNPL also benefits the merchants by boosting conversion rates and average order values (AOV) as it decreases the buyer’s purchase hesitation.
The credit card penetration rate in India is 3.5% which is significantly lower than other developed countries like Canada (83%), Japan (68%), the United States of America (66%) and the United Kingdom (65%). This shows that BNPL has more scope in India. As mentioned before, it can easily fill the gap that credit cards have created in India by making it available to most people in the country who come from diverse backgrounds.
The points stated above strongly advocate that BNPL indeed has a strong scope in India. Not just India, even western markets are ripe to take advantage of this superior technology. No one wants a credit card with layers of hidden charges levied by traditional financial institutions.
So, the answer to the question above is yes. You should learn about this new product if you are one of the following.
1. Product and Project Manager
2. Practitioner and Enthusiast
3. Students, Researchers, Trainers and Teachers
Why should you enroll in the GFA course?
Global FinTech Academy aims to share the knowledge behind different FinTech verticals available to all. We offer a range of courses that make Technology easier for you. You can use this to strengthen your career, disrupt the FinTech market that is full of potential, or for literally anything. The good news is you get to learn all this in an easy language and from ground zero. Our aim is to deliver the best knowledge for you in the easiest way possible.
The course content is
- Buy Now Pay Later, BNPL,
- Pay in four 4,
- COVID and BNPL,
- Market size of BNPL,
- Data points and trends,
- Global market and players,
- business models of BNPL companies,
- changing dynamics due to BNPL,
- transaction flow,
- popularity and reasons,
- consumer insights,
- credit culture and BNPL,
- credit card VS BNPL,
- BNPL’s impact on our credit bureau report,
- soft and hard check enquiry on the credit bureau and what do these mean,
- risks in the business model,
- regulatory risk,
- benefits for the shoppers, merchants,
- how do BNPL makes money,
- the economics of the model,
- regulators on BNPL.
We are excited to simplify one of the most talked-about, and hottest industries right now for you.
To get this course for USD10 only, apply code GFA10 at the checkout page.
Expecting to meet you on the other side of the course!
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