Buy Now, Pay Later (BNPL) is quickly changing the way consumers shop and pay for their purchases. BNPL allows shoppers to make a purchase but pay for it at a later given date or to divide their payments into a few or several instalments.
BNPL is gaining popularity in India and around the world, especially during and in the aftermath of the coronavirus pandemic. BNPL is more accessible than credit cards, and you do not even need to have a credit history to take advantage of it.
A shopper just needs to register themself on a Buy Now, Pay Later provider’s platform and complete KYC requirements (which can be done online). This service can also be availed without paying any interest.
Your Guide to BNPL
In this article, we’ll take a dive into BNPL and discuss its future prospects.
What Exactly is BNPL?
BNPL is a financing system that allows consumers to purchase goods and pay for them later. These goods can be of any type, such as FMCGs, consumer durables, clothing, and so on.
A BNPL financing system consists of the following key elements:
- The BNPL service provider enters into agreements with participating merchants.
- The merchant agrees to offer BNPL services at checkout and pays interest to the BNPL service provider every time a consumer opts to use BNPL services. This is where the revenue of a BNPL service provider comes from.
- The consumer effectively receives a discount on their purchase if they opt for a zero-interest BNPL scheme.
It is a win-win situation for all three stakeholders: the merchant, the consumer, and the BNPL service provider.
The merchant gets to make a sale which they might not have otherwise.
The BNPL service provider receives interest for their financing services from the merchant.
The consumer gets more payment flexibility and can pay for their purchases at a later date.
Why is BNPL Gaining Popularity?
BNPL is getting increasingly popular in India. The demand for such services has only grown when compared to pre-COVID levels.
This growth has been especially seen amongst young users who are just starting out in life. These users need to make frequent large purchases, and BNPL allows them to make such purchases without having to spend more than their current salary.
Millennials and Gen Z are tech-savvy enough to understand how BNPL works, and they can access such services conveniently. They are also more aware of such services when compared to older generations.
BNPL is meant to serve users who do not have a credit history and do not have access to credit cards. In India, only 3 out of 100 people have a credit card. This shows that there is a large gap between people who need access to credit and people who have that access.
BNPL is poised to cover that gap.
Is BNPL Here to Stay?
In India, the BNPL narrative is about access to credit. People who are not eligible for credit cards can opt for BNPL schemes to be able to afford small and mid-ticket products and goods.
As mentioned earlier, only 3% of Indians use a credit card. This leaves out a large section of the population that needs credit to be able to finance necessary purchases. Credit cards are only offered to people with high CIBIL scores living in metropolitan cities. But India is larger than that, and more and more people can use BNPL to meet their micro-financing needs. This is why people from tier-2 and tier-3 cities are flocking to BNPL solutions in great numbers.
BNPL in India is also poised to gain from the rise of e-commerce in the country. By 2024, BNPL is expected to account for 9% of all online purchases in India.
The main attraction of BNPL in India is that it is a way for users to access micro-credit in a less formal way. Users do not have to go through cumbersome administrative processes as compared to taking credit from banks.
Globally, the conversation around BNPL has pitted them against banks. However, in India, BNPL service providers are collaborating with banks rather than competing against them.
Such partnerships are beneficial to both the traditional banking companies and the BNPL service providers. The partnerships allow BNPL service providers to bring financial inclusion at a scale which they could not have achieved while working alone.
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The growth potential of BNPL in India is staggering. BNPL offers a unique take on micro-finance, which addresses a large gap in the current market. BNPL service providers are already partnering with e-commerce platforms, food-delivery apps, online travel agents, and more in an effort to bring financing where consumers are.
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