Buy Now Pay Later – Dutch Uncles

Small Ticket Loans : New Avenues for Fintech in Small Cities

Shalmoli Sarkar — Wed, 26 Jan 2022 08:35:13 +0000

The pandemic has altered the consumer lending behaviour which has shrunk the ticket size of loans with most loan requests coming from blue and grey collar workers and millennials. According to the joint report by credit bureau TransUnion Cibil and Google the disbursal of small ticket loans has been 70 percent with most borrowers belonging to tier-II cities and smaller towns, and a majority of millennials requesting retail loans. Since September the demand for small ticket loans from blue and grey collar workers and gig workers rose by 25-30 percent and the average ticket size loans have dropped by 10-15 percent, capping the maximum ticket loan upto Rs 25000. The tightening of unsecured credit policies is the reason behind the inclination for small-ticket loans. The lending space in India is devoid of formal sources of credit for the lower-income groups, but with new financing option like BNPL people from remote regions are now availing small-ticket loans which are good news for the fintech players.

Buy Now Pay Later (BNPL): Preferred short term financing option

The buy now pay later ( BNPL) – a short-term financing option for small ticket loans has gained popularity in the pandemic. The user base for BNPL financing option is expected to become 80-100 million by 2026 surpassing the user base for the credit cards is projected to become 75 million, according to a report by BCG. The BNPL market is poised to be worth $45-50 billion by 2026, according to consultancy firm RedSeer.

This short financing option is gaining ground among borrowers since it offers short-term loans without a credit history, and to individuals that belong to lower-income and self-employed individuals. Unlike credit cards, BNPL does not have charges such as joining fees and annual fees. In addition to this BNPL loans have an average transaction size of around 300-600 with zero interest charges.

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According to the joint report by credit bureau TransUnion Cibil and Google the disbursal of small ticket loans has been 70 percent with most borrowers belonging to tier-II cities and smaller towns.

Small ticket loans are speaking opportunities for fintech players in smaller cities

Conventionally the loans offered by banks were for three purposes i.e.personal loans, home loans, and salary overdrafts. The pandemic has tightened people’s purses on discretionary spending due to job losses and paycuts, in which the fintech players are sensing this to be an opportunity to offer credit via BNPL for purchases in online grocery, e-commerce and food delivery. Fintech players like EarlySalary,Dvara Money, NIRA and Bueno Finance are growing steadily in this space with new customer acquisitions monthly with a growth rate of 25-30 percent. Other fintech players offering BNPL such as Simpl, Lazy,PostPe are acquiring customers aged 18-25 years who are novices to the banking system and at the early stage of their credit journey.

The small ticket loans space holds ample opportunities for the fintech players as advancement in technology and digital access is helping the players locate, reach and engage with new customers from smaller cities and towns. As per the joint report of TransUnion Cibil and Google, 77 percent of all retail loan enquiries were from tier-II cities and beyond. In addition to this online searches for loans from non-tier-I cities went up by two-and-a-half times between 2017 and 2020.

The post Small Ticket Loans : New Avenues for Fintech in Small Cities appeared first on Dutch Uncles.

Buy Now Pay Later, Hot But Inexperienced in India

DU Desk — Sun, 18 Jul 2021 05:35:08 +0000

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.

The post Buy Now Pay Later, Hot But Inexperienced in India appeared first on Dutch Uncles.

What is Buy Now Pay Later?

Shalmoli Sarkar — Tue, 18 May 2021 06:05:03 +0000

The pandemic has led the fintech ecosystem to undergo a historic transformation. The recent economic crisis, pay cuts and rapid rise of unemployment are forcing people to revisit their personal financial provisions. The pandemic-induced cautious buying behaviour with an urgent acquittance with savings gave businesses a run for their money. To fight uncertainties and help businesses to ease sales, Fintech in India launched its newest offering Buy Now Pay Later. This payment method is rapidly being incorporated by India’s online shopping and the payment ecosystem. Buyers opting for this method are making purchases in categories such as EdTech, high-end smartphones, large appliances, electric vehicles, fitness accessories and fashion. The profiling of such consumers being an average Indian – 34-year-old, and almost 70 percent from Tier II and Tier III cities.

In the coming years Gen Z and millennials will form the next target consumer base for most brands, fintech apps and e-commerce that are sceptical about making payments through credit cards. Pine Labs which is India’s largest Buy Now Pay Later EMI platform, has seen a 60-70 percent spike in demand from January 2020. This is exactly the time when the purchase graph was at its all-time low.

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Pine Labs is India's largest Buy Now Pay Later EMI platform, which has seen a 60-70 percent spike in demand from January 2020.

What is Buy Now Pay Later Payment Method?

The Buy Now Pay Later is a convenient financing option where the customers can make their purchase but pay for it over time. It eases the spending burden and credit crunch on the consumer by helping to break down a large expense into small EMIs.

Buy Now Pay Later Payment Method

There are two ways of adopting the BNPL payment:

Merchant transaction fee loan: It is a point-of-sale loan where the consumer is not charged any interest instead the merchant is charged a transaction fee by the BNPL platforms.
Shopper interest loan: An alternative BNPL is a point-of-sale loan where the consumer is offered an on-the-spot loan by a third party. The customer will receive the item right at that moment but will pay over time, including interest. There is no charge for the merchant.

How beneficial is it for merchants to adopt?

It offers a holistic purchase experience through its one-click financing feature to its digital native consumers who find the paperwork and other formalities to be gruelling, thereby removing their buying hesitations.
There is an increase in overall sales.
With the opening of a new stream of income shoppers are motivated to buy more as it increases their affordability of a product.

It gives an increase in the average order value and induces shoppers to make bigger ticket purchases bringing an overall increase in sales.

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Why Should Retail Businesses Consider the Store-Credit System?

Shalmoli Sarkar — Sat, 15 May 2021 03:35:05 +0000

Traditional Indian shopkeepers or what we colloquially call Kirana stores form the bedrock of the retail industry growth in India. The traditional retail stores in India play a pivotal role in India’s growth since it alone contributes 11 percent in GDP and employs 8 percent of its total workforce which is roughly 43 million as per a joint report from Trust for Retailers and Retail Associates of India and Accenture. Despite delays and irregularities in supply chain and logistics in the lockdown due to mobility restrictions, the pandemic has witnessed optimum efficiency displayed by the local neighbourhood retail stores with better stocking of essentials and serving India’s massive 1.3 billion population.

Limited business hours and online shopping of essentials – Worrisome?

The pandemic has caused a paradigm shift in consumer buying behaviour and choices. It has transformed the quintessential ‘discount seeking Indian customer into a ‘convenience seeking’ one. Therefore, in the future customers will shift to online channels for buying household essentials. The joint report from Trust for Retailers and Retail Associates of India and Accenture reveals that by 2021 the 13 million family of traditional retail businesses will shrink from its lion’s share of 88 percent to 75 percent. As consumers will increasingly buy online or shop at supermarkets or larger, modern retail stores the local retail stores might lose their hold on the consumer base. As the adoption of digital payments, instant delivery is yet nascent, they might lose ground to other retail formats.

There are many instances where generations of the family have been buying from the same retail store for years. Here, the customer-retailer relation is built on the foundations of trust, which is an advantage for the local retail businesses. The imposition of lockdowns is giving limited shop opening hours for the retail businesses impacting demand and sales. Therefore, local neighbourhood retail businesses need to adopt modern retail practices to reverse the declining trend in sales and profitability.

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The traditional retail stores in India alone contributes 11 percent in GDP and employs 8 percent of its total workforce

What is the Store-Credit system?

The store-credit system is a value that retail businesses can offer to its customer towards any purchase they make from the store. After an order is paid and invoiced, all of it or a portion of the amount is given as credit points to the customers. Customers in the future can use this store credit point to pay for purchases, and store owners can use the store credit for cash refunds. This credit is owned by one particular customer and is non-transferable to other stores or brands. It is different from offering a discount that does not expire the way temporary sales or promotions do.

Types of Store-Credit Systems

Retail businesses can implement four types of store-credit systems in their business:

Returns and exchanges: When customers return or exchange merchandise, store credit is often offered in addition to or in exchange for a full refund.
Store credit cards: When a retailer extends credit and allows customers to pay later, they are issuing a store credit.
Gift cards: When a customer purchases a gift card, they are essentially purchasing store credit to give to someone else. Gift cards also often are used to hold store credit from returns or loyalty rewards.
Loyalty rewards: One of the most common rewards customers earn through loyalty programmes is store credit for a future purchase.

Benefits of having store-credit systems

Retain customers and boost loyalty: The store credit system offers customers an additional incentive which becomes the reason to come back to your shop. It gives repeat business and an opportunity to serve your customers well, thus cementing the loyalty of customers.
Encourage to shop more: The store credit system will induce motivation in customers to shop more. When stores offer a credit system with a reasonable return policy, buyers feel motivated to spend more money to fulfill demands. By using store credit for flexible returns, we make customers feel comfortable to shop with your business.
Tide over low sales: This is applicable for small-medium online businesses. Plenty of Returns and exchanges can be an unpleasant experience for e-retailers, but a large number of returns means losing revenue offering store credit can help turn the returns into exchanges. It enables them to expand the return policy for a longer period or accept returns without a receipt, this ensures that money stays in the business while offering a flexible and satisfying shopping experience to the customers.

What is in it for the retailers?

Store-credit systems will help retailers to build a loyal customer base, generate revenues and give opportunities for repeat businesses that are desperately required for the retail businesses to stay afloat in such testing times.

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