What you need to know about BNPL: India’s fast-growing credit option
With its initial global value set to US$7.3 billion in 2019, the BNPL market has especially skyrocketed during the later years of 2020, estimated to reach US$33.6 billion by 2027
August 16, 2021, India: Buy Now, Pay Later is a short-term financing service that allows customers to spread out their payments for a purchase, usually without any additional interests; where payments can be made within 30 days or up to 12 months depending on the schemes offered by the service providers. Some of the major BNPL players include ZestMoney, LazyPay, Simpl, Amazon Pay, Paytm Postpaid, etc., however, some of the leading banks have also begun to offer BNPL services.
With its initial global value set to US$7.3 billion in 2019, the BNPL market has especially skyrocketed during the later years of 2020, estimated to reach US$33.6 billion by 2027. The Asia-Pacific region is set to have the greatest growth potential attributed to the region’s growing number of internet users which amounts to approximately 400 million. Some of the biggest players in BNPL with the highest expected growth potential are India and Singapore.
In India, BNPL has been established to bridge the gaps in consumer lending in the finance industry. With a small number of actual credit card holders, i.e, 3.33% out of 900 million registered bank users, BNPL has massive opportunities to grow due to commonly raised fears associated with the use of credit cards like hidden charges and fees and high interest rates.
Commenting on this sector, Arun Pai, Chief Sales & Strategy Officer at FLOW (Asia Collect), an ethical credit management company, said, “During the ongoing pandemic, BNPL players have allowed consumers to have a greater range of flexibility with their purchase decisions without the high interest rates often associated with credit cards. While BNPL services continue to grow and change the credit system in India and globally, it all comes down to financial discipline and the decision to opt for such services, which must be done in careful consideration.”
BNPL During the Pandemic
The Covid-19 pandemic has forced the shift of business operations to an online platform. With the majority of customers also shifting to online platforms as their primary source for shopping, BNPL has quickly emerged as a popular form of payment within the consumer market and has permanently shifted the dynamics between e-commerce businesses and their customers.
While BNPL was available for several years, the recent surge in its popularity can be attributed to the growing interest displayed by the millennials and Gen Z population. With comparatively lower ticket sizes compared to traditional loans, BNPL has been well-received by thousands of users across the country especially in lower-tier cities and rural areas.
Is BNPL Right for You?
While the benefits might be prevalent, it could be challenging to really understand the BNPL system to ensure maximum benefits with security. BNPL has been establishing itself as the alternate credit option in India for the last 2-3 years. The lack of credit card penetration has made it harder for the large population to avail of loans due to a lack of credit scores. According to Goldman Sachs, BNPL will rise to become the quickest growing online payment option with a 6% rise in market share from 3% to 9% in 2024.
With immense progression in digital transformation and the accessibility of bite-sized credit, individuals now have the opportunity to break down their larger purchases into smaller interest-free EMI schemes and build on maintaining financial stability. BPNL players are en route to take the payment method to the next level where companies are trying to take the payment option offline by introducing credit options on cards as well during physical checkouts.
Considerations for both lenders and borrowers
While BNPL has opened many doors for financial inclusion and opportunities, there are still a few important things that both borrowers and lenders must consider.
Borrowers must be aware of the fact that BNPL is essentially still a loan and therefore BNPL providers can report one’s repayment behavior to the credit bureaus upon delay in payment. Experts say, just like any other loan, it will still fall upon the customer to make repayments promptly to maintain a healthy credit score since most BNPL providers report repayments to credit bureaus. Late fees or penalties can have a stark difference from credit cards as they are usually much higher. BNPL can tend to lead to higher impulse purchases and oftentimes, they create the repayment plan and users do not have a say on what date the payments are made.
On the other hand, lenders must step forward to fully educate the borrowers on BNPL schemes and help them be more aware of the finer print in order for the process to be beneficial for both parties, which usually does not happen. BNPL payment options also call for higher merchant fees and are not easy to integrate into the business payment model with customization. In addition, BNPL is not available to all businesses as it must be verified first.
FLOW is an ethical credit management company that is transforming the business of unsecured consumer finance through customer-centric operational processes integrated with AI technologies in Asia. For more details, connect: https://www.flow-tech.ai/en-in/
Disclaimer: This content is distributed by SRV Media. No HT journalist is involved in the creation of this content.