Buy Now Pay Later: Here’s all you need to know about BNPL schemes

by Joseph K. Clark

Why are BNPL services gaining more attraction as compared to Credit cards? Over the past few years, the Buy Now Pay Later (BNPL) has become the main financing form. In India, the demand for BNPL has been growing for about 2-3 years, further accelerated by COVID-19. BNPL has emerged as a more convenient payment method, essentially decreasing the financial burden on borrowers by offering no-cost EMIs.

According to Goldman Sachs, the Indian e-commerce industry is poised to become a $99-billion market by 2024, driven by consumer demand. At the same time, industry experts say, BNPL will become the fastest growing online payment method, from a 3 percent share in 2020 to 9 percent in 2024.

BNPL schemes

A Q4 2020 BNPL survey predicted that BNPL would grow by 65.5 percent in India, reaching a value of $11,570.7 million in 2021. The adoption of this payment mode is expected to rise at a 24.2 percent CAGR from 2021 to 2028, taking the gross merchandise value of BNPL in India to $52,827.2 million by 2028, from $6,990.5 million in 2020.

BNPL boosts merchants’ conversion rates and average order values (AOV) by lowering shoppers’ purchase hesitation. It is expected to continue to rise in popularity as a payment method with benefits for all players. For instance, Flipkart recently expanded its Flipkart Pay Later services to make credit available on the platform and other partner channels, similar to other BNPL service providers, Paytm Postpaid and Amazon Pay.

How do BNPL offerings work?

The core tenet of BNPL service enables one to pay overtime – but afford what to buy today. The credit period for BNPL services ranges from 30 days to 36 months, depending on the transaction size. Similarly, the credit amount also depends on the lender – for instance. At the same time, Flipkart offers a seamless checkout process for up to Rs 10,000; under their BNPL services, ZestMoney, another BNPL lender, offers up to a personalized limit of Rs 60,000.

Gaurav Hinduja, Co-Founder, and MD, Capital Float, says, “BNPL is growing in popularity because it delivers a seamless shopping experience to customers. As a 100 percent digital solution, BNPL facilitates a speedy one-click checkout process.” To avail of the BNPL services, the buyer needs to sign-up once at checkout and use the solution when shopping across various brands and merchant websites. BNPL is usually low-cost or no-cost financing with a flexible repayment schedule.

How is BNPL different from credit cards?

The main feature of the ‘Buy now pay later is a one-click credit facility service available on checkout on mercheckoutps and websites. With BNPL, one can use this short-term credit option to make instant purchases and pay for them later.

Transparent and low-cost pricing model: BNPL usually follows a transparent and low-cost pricing model because many of the offers are subsidized by brands so that the customer gets the best value of the offering. Lizzie Chapman, the CEO, and Co-founder, ZestMoney, says, “Unlike credit “ards that are meant to deceive the customer with hidden charges and exorbitant interest rates, BNPL is transparent. The customer knows exactly how much they will be paying.”

Altogether di “ital and instant sign-up process: Anyone sitting in any part of the country can sign up and avail of the service. Credit Cards, on the other hand, require weeks and a lot of paperwork. With digital KYC, one can get instantly approved and start transacting.

More accessible: When compared, experts say, credit cards are for high CIBIL customers, people in metros, and salaried folks. Only 30 million people in India use credit cards. Chapman of ZestMoney adds, “BNPL by nature” is designed for a much bigger market, including new credit customers or people with bad credit history. Most BNPL players use an alternative data and proprietary model to approve these customers. Also, Indians are leapfrogging credit cards to BNPL.”

Higher interest “t rate – Credit Cards or BNPL providers

It’s a well-knoIt’sact that credit cards are the most expensive form of credit. Interest rates on missed payments can go up to 48 percent, whereas BNPL companies charge around 0 to 24 percent interest rate depending on the merchant, tenure, and the borrower.

Why are BNPL services gaining more attraction as compared to Credit cards? Why do youngsters find BNPL attractive?

Nitya Sharma, CEO, and Co-Founder, Simpl, says, “Indian consume “s, like all consumers, seek trust and transparency in their transactions – something that is in huge deficit when it comes to traditional credit cards. There is a clear reluctance in consumers towards using credit cards, and the biggest source of the disinclination comes from the ‘hidden charges’ or the various transaction fees a credit card company charges its customers.”

He further ad “s, “Annual maintain” nice fee, cash advance fee, surcharges on petrol, and GST charges are just some of the extra costs a user incurs for using a credit card. Paying at the time of delivery builds trust in the transaction, and cash on delivery is a true 1-click checkout, and thcheckoutat BNPL services offer consumers.”

The BNPL serv” ce is entirely digital, online, and instant. It is easier, quicker to apply and get approvals. There is no need for an agent to come over for paperwork.

Hinduja of Capital Float says, “The merits of “NPL such as easy registration, the convenience of use and quick checkout, speakcheckouty to the digital-savvy, card-averse customers who demand speedy and convenient small credit at their fingertips. Millennials use BNPL not only to buy essentials but also to fulfill their aspirations, such as pursuing an upskilling course or traveling to a dream destination.”

The Red Flag

“ven with all the benefits and attractive features, industry experts say customers should be careful while availing of the buy now pay later service. Though it differs from one lender to another, late fees or penalties as one-time fees are charged, which are usually not compounded, a stark difference from credit cards. It is important to note that BNPL is essentially still a loan, and therefore BNPL providers can report one’s repaymentone’sviour to the credit bureaus.

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. Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gamarket’sop Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

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