Experts discuss the new trend in payments

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A new model of credit is taking shape in the country, a simple low-cost loan that makes it possible to make purchases online and sometimes offline with one click. It’s the rise of the buy now, pay later (BNPL) phenomenon – it’s a priority.

Get what you want now, pay for it later, what don’t you like right?

A new model of credit is taking shape in the country, a simple low-cost loan that makes it possible to make purchases online and sometimes offline with one click. It’s the rise of the buy now, pay later (BNPL) phenomenon – it’s a priority.

The good old “khata” systems were there in the local kirana stores for repeat customers, the ones where you kept tabs on the books, bought daily groceries, and paid later at some point. This BNPL system is not much different, except that the “khata” has now moved online.

Registering with BNPL is extremely simple – the loan is not very expensive, in fact, interest free in most cases. It’s digital, convenient, and instant gratification with an engaging user interface. And that’s what millennials and Gen Z love.

What exactly is BNPL?

Simply put, Buy Now, Pay Later is a short-term financing service that is sold as a product that allows customers to spread payments for a purchase, usually without any additional interest.

Thus, a BNPL company will partner with e-commerce players like Amazon or Flipkart or meal delivery companies like Zomato or Swiggy, or even travel booking players like MakeMyTrip etc. Then, this will allow customers to buy immediately and delay payment by a few days or months, or repay the amount in installments without additional interest, provided the customer pays on time.

Does this sound like a credit card product? Credit cards are indeed the original buy now, pay later for the product. They are more widely accepted in terms of where they work, but a lot of people don’t have a credit card in India. The credit card penetration rate in the country is abysmal at around 3.3% and that 97% market is where the guys at BNPL come in.

So how exactly is the BNPL model different from credit cards?

One of the big drawbacks of a credit card is hidden charges. There is no such baggage with regard to buy now, pay later.

Additionally, banks would review your credit history before issuing you a credit card. No need to buy now, pay later.

Credit cards have more flexible acceptance, BNPL services, on the other hand, are provided by some e-merchants and fintech organizations. In addition, the credit limit with regard to BNPL is generally capped at Rs 60,000 on digital platforms. Credit cards generally have a higher threshold.

There is a standard interest-free period of up to 30-60 days in the case of credit cards, but with buy now paying later, the interest-free credit period can be up to 48 months.

Once you get past the interest-free period, you may have to pay up to 48% interest on credit cards. BNPL does not charge any additional interest, but does charge late fees.

You have the option of paying only the “minimum due” amount on the credit card, but if you use the Buy Now and Pay Later services, you have to pay the fixed EMI on the due date.

Plus, credit cards give you the ability to earn cash back rewards, not such incentives to buy now, pay later.

Some of the major Indian BNPL players include LazyPay, Simpl, Capital Float, ZestMoney, etc., then there are the platform specific captive BNPL players like Amazon Pay Later or Ola Money Postpaid etc.

So where are the banks?

While startups led the charge, traditional banks initially refrained from venturing into BNPL for fear of cannibalizing their lucrative credit card business.

However, over time, they realized that credit cards and BNPL can coexist and even complement each other. So the banks have now joined the party and are using Buy Now Pay Later to attract a new set of customers who have so far stayed away from credit cards.

Nitya Sharma, co-founder and CEO of Simpl, Amit Goel, Indian director and vice president of Prove and Vikas Bansal, director of Amazon Pay, discussed this in more detail with CNBC-TV18.

Sharma said there are around 900 million people with bank accounts in India and they all have debit cards and UPIs. “About half a billion people have smartphones with Internet connectivity, and around 250-200 million people shop online, but only 30 million unique people in India have a credit card. So we launched Simpl with the vision of reinventing the credit card so that it was mobile native and Internet native, ”he explained.

Goel highlighted the growth of the industry and said it was not just fintech companies, but larger tech companies and banks as well. Since it attracts a large number of users who do not have access to credit cards, BNPL has provided a good way for people to buy stuff, using this short term revolving credit.

Bansal said the trend in India is that due to the COVID-19 pandemic, customers are looking for a secure method of payment. At the same time, the emerging Millennials and Gen Z population are looking for ways to expand their budgets, manage their monthly expenses and achieve their aspirations, he said. “So we think buy now, pay later is an offer that is important and critical right now for these customer segments,” he added.

For the full discussion, watch the accompanying video.


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