Buy Now Pay Later, or commonly known as the BNPL is the latest buzzword in the Indian Fintech and Credit ecosystem. BNPL is set to disrupt the credit market, with technology making it easy for lenders to provide sachet-ticket loans, without the risks or costs associated with lending to this category. In this article let us understand what exactly BNPL is and its latest trends in India.
BNPL is a type of short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free, or at very low-interest rates.
So this is how it works :
- A person makes a purchase and chooses BNPL at the checkout.
- If approved, a small down payment has to be paid (20-30 percent of the total purchase bill).
- Pay the remaining balance in a series of interest-free/ very low-interest installments.
Sounds like credit cards, doesn’t it? Here is how BNPL differs from credit cards:
- Transparent and low-cost pricing model: Credit cards have various hidden charges, which deceive consumers. BNPL on the other hand discloses all the charges and the actual amount which the consumer would have to pay.
- Completely digital and instant sign-up process: While credit cards require a lot of paperwork and a few weeks to get issued, BNPL takes a few seconds to process.
- More accessible: BNPL services are offered to customers with insufficient credit ratings as well, hence making this an increasingly popular choice over credit cards.
This makes BNPL very attractive to consumers as it allows them to get the things immediately while also getting extra time to pay for them. It is also possible to get approved for this type of financing even if a person has been shut out of other loan options due to a low credit score. BNPL loans don’t add to the credit card debt and affect a person’s credit score, normally; in fact, they’re often too brief to be reported to the credit bureaus at all.
So a question might crop up. How does a BNPL service make money out of this? There are various business models for these providers. The most common ones are:
- Offer BNPL at a very low-interest rate to the consumers.
- Offer BNPL to the consumer without any interest from them; charge a commission from the retailers/ sellers on the platform.
However, this model brings its own set of disadvantages as well. The payments are hard to track, late payments/ default payments result in expensive penalty fees and there are no cashback and rewards to the consumer.
Currently, the BNPL market size in India is estimated at $15 Billion and is expected to grow at a CAGR of 60.69% and reach $100B by 2025. Indian Fintech startups and a few global financial services companies are jumping into the BNPL market to grab a slice of this huge pie. Flexmoney, Simpl, LazyPay, Zestmoney, Paytm, Capital float are some of the fintech startups which are offering BNPL services and have made some inroads in this market. Global card networks such as Visa and Mastercard are the latest entrants to the BNPL ride. With rising digital payments adoption, an increase in online shopping, and a general rise in consumption by various market demographics, BNPL is in a prime position to take advantage of the growing consumer needs.
– By Surya Kaushik B N, Third Year Department of Electronics and Communication Engineering