Buy Now Pay Later, Hot But Inexperienced in India

BNPL is making inroads into retail. It is also being adopted by fintech players. But yet banks in India are shy to adopt this model, why?


The buy now pay later (BNPL) financing model that remained in its absolute infancy is gradually gaining ground in India. Amid job losses, business closures and pay cuts induced by the pandemic, credit card limits have been lowered, resulting in discretionary spending taking a backseat. For small businesses, traditional lenders are denying loans looking at the negative business environment.   

Such pandemic-induced economic change is driving consumers and small business owners to find alternate ways of financing at low or zero interest to fund their purchases and sustain business in such grim times. This is where BNPL has emerged to be the most convenient payment option that provides customers make payments for essential and aspirational purchases with 15-30 buffer days for repayment at 0% free interest rates without worrying about the irregularities in salary. 

To boost festive sales in its platform e-commerce majors Flipkart and Amazon introduced pay later options. To which Flipkart witnessed a 7 times increase in consumer spends on introducing the BNPL option and 1.7 times higher adoption of the EMI schemes. 

It is anticipated that e-commerce and BNPL will have a promising future. A report by Goldman Sachs reveals India’s e-commerce market to become a $99 billion market by 2024 and BNPL will become the fastest growing online payment method that is poised to grow from 3 percent in 2020 to 9 percent in 2024. 

The Buy Now Pay Later for MSMEs 

In such a weak economic slowdown, the traditional lenders are apprehensive about offering loans to small business owners. With BNPL making inroads in the consumer retail sector, new-age digital lenders, fintech and NBFCs are introducing this model to offer convenience and financial flexibility to the MSME sector, which are already staring at closures. 

Digital lending platforms like SOLV, a B2B e-commerce marketplace for small businesses along with its network of financial service providers are offering BNPL finance solutions to suffice the financial needs of MSMEs to run their daily operational requirements of the business with adequate time for payback. 

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A report by Goldman Sachs reveals India’s e-commerce market to become a $99 billion market by 2024 and BNPL to become the fastest growing online payment method that is poised to grow from 3 percent in 2020 to 9 percent in 2024. 

Attracting a new set of consumers from Buy Now Pay Later 

Millennials and Gen Z individuals will be ruling the Indian workforce and hence will bear immense purchasing power and the demand for aspirational purchases is present. But what prevents them from opting for loans is the hidden fees of credit cards and paying interest rates. The buy now pay later model is an agile micro-lending financial solution that helps to break down larger expenses into smaller, easily payable and interest-free EMIs without making an upfront payment at the same time. 

 The youth of today seek instant gratification and find it cumbersome to go through the conventional paperwork process of seeking loans. For BNPL no such process is required, while checking out from an e-commerce site they just need to undergo a simple registration process that can be completed during checkout. 

Such convenient financing options will motivate them to make high-value purchases without affecting a consumer’s savings or cash flow. 

Traditional banks like ICICI have partnered with Pine Labs to offer in-store pay-later facilities to retail consumers. Similarly, in 2018, HDFC Bank also launched its Flexipay model to provide zero-interest credit for 15 days with a maximum credit limit of INR 60K. The bank has partnered with Myntra, Bata, MakeMyTrip, health tech startup Curefit, beauty giant Lakme Salon, Urban Ladder and other platforms. 

Why is Buy Now Pay Later model an Inexperienced category in India?

Need for assessing the borrowers

The name which carries the phrase ‘ Pay Later’ creates fear in the minds of lenders and banks. During the first nine months of 2020, a leading BNPL player globally witnessed a 35 % increase in credit losses. This stresses the need to analyse and assess the digital footprints of the borrowers for real-time insights and decision-making. 

Cannibalisation of the Credit Card Business

Banks other than HDFC and ICICI are not stepping into the BNPL model as they are apprehensive about the BNPL model cannibalising their credit card business. 

Local Banks are not well equipped

As documentation processes are less, the local banks need to adopt technologies to take optimise the processes and policies. There is a need to build a safe and easy onboarding process for borrowers and ensure the highest standards of data privacy and robust cybersecurity measures are implemented.

DU Desk
DU Desk
Stories from DU Desk are the collective efforts of our in-house authors, guest authors and subject matter experts who collate and distill their ideas and thoughts to bring out actionable insights for our readers.

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