Buy Now Pay Later is revolutionising online shopping

The Buy Now, Pay Later (BNPL) has become the trendiest new credit revolution. Instant credit lines allow users to pay for things at their leisure.

BNPL powers today’s food delivery and e-commerce. It has conquered travel, fashion, education, insurance, and everything else that accepts digital payments. In India alone, the BNPL market is estimated to grow at a CAGR of 24.2% from 2021 to 2028.

If you are yet not aware of this sensation,

BNPL is a form of digital payment which allows a shopper to avail an instant credit. For the same, you need to register with a service provider (a BNPL platform) that funds your purchase. If the lender makes a payment on your behalf, you must return the loan within a certain time. You may pay it in one single payment or in no-cost Equated Monthly Instalments (EMIs).

The wave is driven by e-shoppers across the country.

The Indian E-commerce market is poised to be a $99-Billion market by 2024.

1. Of all payment modes, the BNPL offering had a 3% share in 2020, which is expected to be 9% in 2024.
2. BNPL is expected to grow by 65.5%, reaching a value of $1,570 in 2021.
3. Between 2021 to 2028, BNPL will grow at a CAGR of 24.2%, taking the GMV (Gross Merchandise Value) of BNPL shoppers in India to $52,827 million by 2028 from $6,990 million in 2020.

Millennials and Gen Z are the primary online purchasers in India. And 60% of the BNPL programs are used by 18-34 years old because:

1. Millennials and Gen Z are wary of using a credit cards, interest, and fees.
2. Younger customers in the age group 18-25 years occupy only 5.8% of the Credit Card base
3. 33% of users who availed of the installment payment option didn’t feel the need to use any other credit facility
4. It improves personal finance by improving cash flow. The need for credit and a better checkout facility has become secondary.
5. It doesn’t require the user to be a customer of a particular bank like in the case of credit card

Why is BNPL so popular?

The BNPL phenomenon has several tangible and intangible components. First, the pandemic has increased the prevalence of BNPL in online shopping over in-store commerce. Second, merchants use this payment method to attract people to make impulse purchases.

eShopping fuelled by pandemic

The Covid-19 pandemic boosted BNPL as limited mobility hastened internet sales. Customers’ purchasing power was restricted, and the current credit system did not support supply and demand. As a result, BNPL became a key enabler for on-demand credit for both products and services.

BNPL’s financial assistance to consumers remained constant throughout the pandemic. Which made the consumer shift their loyalty towards BNPL retailers.

Following Products and Services consumers bought using Buy Now Pay Later ~

1. Products like food ordering, medical supplies, clothes, furniture, groceries
2. Among Services customers bought – online courses, insurance, made utility payments, housekeeping services

Offers instant satisfaction, across-demography

Most tech-savvy Gen Z and Millennial consumers choose BNPL transactions over other payment plans because of their ease of use, cost-effectiveness, and quickness. They have less purchasing power, a more fluctuating credit rating, and a need to buy everything instantly.

With fast lending, flexible repayment options, and gentle credit checks, BNPL caters to its customers’ every whim. BNPL solution is appealing to senior shoppers as well. Instead, the low-interest rate and short repayment period appeal to all demographics.

Affordable repayment plans

A BNPL loan typically requires upfront payment. For example 25% of the total purchase amount.

1. Most BNPL fintechs allow users to pay back the loan in 15 days or less.
2. Postpone your dues into simple EMI options with 2-, 4-, 6-, or 12-month terms or enable auto-debit from your account.
3. You may also use the BNPL UPI ID to pay in shops and become cashless at any moment.

Simple KYC, no obscene fees

With minimum e-KYC, you may get maximum credit. Unlike credit cards, there are no hidden fees, service charges, or compound interest. All payment conditions are specified upfront. There’s also no need to input transaction OTPs, card data, or reload your wallet every time you need to pay.

Difference between BNPL and Credit Cards

	Credit Cards	Buy Now Pay Later
Transparent and affordable pricing model	Credit cards trick clients with hidden fees and high-interest rates.	In the case of BNPL, the consumer is aware of the amount they will pay.
The completely digital and quick sign-up process	It takes a week to get a credit check, resulting in a reduction of geographical barriers around the country.	With digital KYC, one may get approval for a loan and begin engaging immediately.
More Accessible	Credit cards are designed for clients with a good CIBIL score and salaried individuals in metropolitan areas. In India, just 30 million individuals use credit cards.	BNPL is designed for those with limited credit karma. BNPL companies approve consumers using different and private data and algorithms. Indians are previous credit cards in favour of BNPL.
Credit Card or BNPL providers – who have a high-interest rate	Credit Card Debt are the costliest type of credit. Interest rates on late payments may reach 48%	BNPL firms charge between 0 and 24%, depending on the merchant, the length of the loan, and the borrower.
Other credit card maintenance fees that do not apply to BNPL	Annual maintenance fees, cash advance fees, fuel surcharges, and GST taxes are a few of the additional costs associated with credit card usage.	BNPL companies are currently in acquisition mode and have not created any entry barriers. Repayments or late fees are currently outside the purview of GST
Pay on Delivery is compatible with BNPL	A credit card is a deterrent to customers’ confidence. India is still a hybrid-purchase market, a mix of brick & mortar and online shopping. Touch & Feel, Try & Buy are still dominating shopping behaviour.	COD or Pick Up at Destination establishes confidence in the transaction and is the most effective online purchasing method. BNPL’s service is entirely digital, electronic, and immediate. It is simpler and faster to apply, and rapid approvals are available. The agent is not required to meet with the applicant to complete the papers.

BNPL boosts AOV (Average Order Value) for merchants by lowering customer hesitation towards a form of credit. India’s annualised BNPL market has risen to roughly $1.5-2 billion in gross transaction value terms in less than 18 months, from only a few million dollars in 2019. Now Millennials have started using BNPL money even for perusing an upskilling course or travelling to a dream destination.

DINTW Research

What are the few BNPL Drawbacks?

1. BNPL is still in its infancy, but its partner network is rapidly expanding.
2. Brands are pursuing millennials, non-credit cardholders, and those with no credit history are gravitating toward BNPL.
3. When you purchase with a credit card, you may earn cash back, air miles, and other benefits such as discounts, access to airport lounges, and free travel insurance – while BNPL is restricted to shopping.
4. BNPL users must exert caution. While it is lender-driven, lenders issue late fees and penalties as one-time costs often not compounded.
5. Since, BNPL is effectively a loan, BNPL providers can report an individual’s repayment behaviour to a credit bureau.
6. While credit limits for Buy Now Pay Later Loans ranges from Rs 2,000 to Rs 1 lakh, credit cards offer higher credit limits determined by your credit score.
7. While BNPL provides short-term, rapid financing, its late payment rates on modest borrowings are significant, ranging up to Rs 100 for borrowings of up to Rs 1000. The lender sets the repayment schedule, and they have the authority to debit your account automatically.

Fastest Growing BNPL Companies in India

There is a mix of BNPL companies in India:

1. There are FinTech companies that only offer pay later services. They offer integrated shopping apps, and users can shop within the BNPL app.
2. Ecom companies mainly offer BNPL services via Fintech partners like Lazypay, Simpl.
3. Large companies like Amazon, Flipkart, and Paytm who have an operating wallet license, offer their own Buy Now and Pay Later, making them partly a BNPL service provider.
4. Flipkart provides a frictionless checkout procedure for purchases up to Rs 10,000
5. Zest money, another BNPL lender, provides customised credit limits of up to Rs 60,000
6. In India, Lazypay presently serves 30 million BNPL subscribers. Simpl has seen a 30% increase in BNPL for necessary commodities purchased from hyper-local vendors.
7. Throughout the recent Navratri, Dussehra and Deepawali festivals, leading consumer Internet firms like Flipkart, Amazon, Paytm, and Byju’s offered clients BNPL payment alternatives.
8. Less than Rs 5000 BNPL borrowing has surged by 20% to 30% in the last 90 days – the beginning of the festive season in India.

The Top 10 Buy Now Pay Later Fin-Tech companies in India are ~ Simpl, Zest, Lazypay, Flexmoney, ePay Later, Pay TM Post Paid, Ola Money Post Paid, Amazon Pay Later, Flipkart Pay Later, Capital Float:

1. Flipkart provides a frictionless checkout procedure for purchases up to Rs 10,000
2. Zest money, another BNPL lender, provides customised credit limits of up to Rs 60,000
3. In India, Lazypay presently serves 30 million BNPL subscribers. Simpl has seen a 30% increase in BNPL for necessary commodities purchased from hyper-local vendors.
4. Throughout the recent Navratri, Dussehra and Deepawali festivals, leading consumer Internet firms like Flipkart, Amazon, Paytm, and Byju’s offered clients BNPL payment options.
5. Less than Rs 5000 BNPL borrowing has surged by 20% to 30% in the last 90 days – the beginning of the festive season in India.

Department of Posts, Ministry of Communication, Government of India is the most recent addition to the list which offers BNPL option on bulk consignments

Rs 10,000 worth of speed post business in a calendar month. Bank customers can partner with Speed Post via Bank Guarantee and avail of benefits.

BNPL operators’ sources of income

Merchant fees and late customer fees are the primary revenue sources for FinTech firms that provide BNPL.

Compared to traditional credit card or debit card issuers, the Merchant Discount Rate (MDR) is around three times greater. It’s not a problem for retailers to pay a little more. Card abandonment goes down, and conversion rates both go up when you use BNPL.

Merchants get access to other privileges like free products, tax consulting, line of credit and other business benefits

How does lender make money?

A FinTech Company uses SMS data and credit ratings to determine income and payback rates for underwriting. Additionally, they authorise consumers to use an alternate and private data set and algorithm. Typically, a loss is booked on the NBFC’s or banks’ books.

While default rates for BNPLs in India are not publicly available, industry sources indicate that the bounce rate is between 15% and 20%.

BNPL Business Models

Pre-purchase through post-purchase, and the BNPL providers are developing integrated shopping platforms that involve customers throughout the entire purchasing process. Big companies are slowly gaining size and engagement to become a “super app” like giant China-based firms like TMall or Ant Group, which provide shopping and finance and banking and insurance goods, all on one platform. Financing isn’t the only way these big companies exploit their customers’ time and attention (for example, affiliate marketing, cross-selling credit cards and banking products).

BNPL companies offer credit across the following payment models:

1. Split Pay – pay partly upfront; rest later
2. Pay Later – pay 100% later within a short duration
3. Long Term Financing at 0% Annual Percentage Rate (APR) – You are offered 0% EMI on high-value purchases. This may include a 25% upfront payment
4. Long Term Financing with subsidised interest or fee – pay upfront or exchange existing product. Rest is financed at low-interest rate

Comprehensive article on the business models used by these companies to offer customer credit and drive growth - Read Now

Tips for maximising value and achieving long-term success with BNPL

The estimated return on assets, technical needs, amount of investment, and time to market of the various go-to-market approaches differ from one another. In truth, these are just a few of the essential variables to consider. The ramifications of each choice on necessary capabilities, compliance and risk, customer experience, vertical emphasis, the competitiveness of offers, and other considerations must be considered by BNPL Financer, Platform and Aggregators at each stage.

1. Opt for credit delivery and underwriting that is not dependent on the product.
2. Integrate BNPL throughout the buying experience, rather than just at the checkout
3. Rethink credit scaling, risk, and economic variables, rather than just at the checkout
4. Combine and contrast business models based on the needs of the company.
5. Collaborate with FinTechs such as M2P to achieve remarkable go-to-market speed and technical assistance.

The Way Forward

Buy Now Pay Later is revolutionising online shopping and will continue to be a secular trend, and regardless of whether the incumbent businesses survive, the underlying consumer demands met by BNPL financing will continue to influence consumer choice. It will be necessary to act quickly to develop a clear strategy and a roadmap to join and compete in this industry. While the development of BNPL finance may seem to be progressing at a glacial pace, for the time being, it is expected to accelerate. Putting initiatives to combat this tendency should be at the top of the priority list for every financial institution.

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