Why is BNPL becoming India’s fast-growing credit option?
Goldman Sachs says, the Indian e-commerce industry is poised to become a $99 billion market by 2024. At the same time, according to different industry experts, Buy Now Pay Later (BNPL) will become the fastest growing online payment method, from a 3 percent share in 2020 to 9 percent in 2024.
Buy Now Pay Later, as the term suggests, is a scheme that allows shoppers to buy a product and make payments later at the end of a stipulated time period. Millions of people now use the BNPL services to finance their big purchases. Although, BNPL is having a moment but critics are worried about how many people are spending more than they can afford and some are unknowingly getting into debt. Let’s understand what is this scheme all about and why is it suddenly booming?
WHAT IS BNPL & HOW DOES IT WORK?
BNPL simply means that you get to make a purchase right away but are allowed to pay the amount later without using any credit card. Consumers get the product up front but pay for it in incremental amounts. The concept is on a boom right now due to coronavirus but isn’t new. Some of the big fintech companies that offer BNPL services are Amazon Pay, Simpl, Slice, LazyPay,and ZestMoney. Some recent developments have been done by BNPL providers firms which are:
1. The partnership between Amazon & Affirm
Amazon buyers will be able to split purchases of $50 or more into smaller and monthly installments. Affirm said some loans will come with 0% Annual Percentage Rate (APR) while others will bear the interest.
2. Apple Pay enters into BNPL Space
Apple Pay ties up with investment bank Goldman Sachs to venture into the BNPL segment. Users can use the Apple Pay Later feature to make Apple Pay purchases. Under the scheme, Goldman Sachs will be responsible for covering and handling the installments for the new proposition.
3. PayPal ends late fee for BNPL customers
More than 7 million customers have used the BNPL service of PayPal, leading to a purchase of more than $3.5 billion of products. Customers will no longer have to pay additional charges if they miss a PayPal installment for a previous purchase.
THE FUTURE OF THE BNPL SCHEME
The gross merchandise value of BNPL in India will reach $52,827.2 million by 2028, from $6,990.5 million in 2020. In the future, BNPL providers will:
1. Help merchants increase sales
Merchants who use BNPL providers have reported sales growth. Sometimes, customers prefer not to buy products to avoid the money loss and the negative emotions associated with it but BNPL partly comes to the rescue and solves this problem. Customers can buy the product at the moment and feel the positive emotions after acquiring the product.
2. Emerge as shopping destinations
Pay later service company Afterpay announced the launch of Afterpay Ads that will enable its merchant partners to advertise on BNPL firm’s application to boost their products, promotions, and offers. “Afterpay Ads unleash the power of our ecosystem by giving brands a new way to promote products, collections, and offers to Afterpay’s highly engaged young audience of shoppers,” said Mark Teperson, Afterpay’s Chief Strategy Officer.
THE RISKS INVOLVED
But there’s also a downside of BNPL too. Many critics claim that the scheme encourages buyers to spend more than they can afford. Reports suggest that over the past two years, 43 percent of BNPL users were late in doing payments. Two-thirds of them said that they lost track of the bill due date while one-third blamed it on not having the money.
Most BNPL providers do not charge interest if consumers pay on time but if the payment is missed due to any reason, the consumer goes into a big trouble. A failure to repay the amount may spoil the credit score and further make it difficult to apply for any big loan in the future. Moreover, BNPL schemes also do not offer the same consumer protections as credit cards, including chargeback rights.
There are still certain important things that borrowers and lenders should keep in mind. Borrowers should be aware that BNPL is still a loan and they need to repay it on time. On the other hand, lenders should educate the borrowers properly about BNPL schemes so that borrowers can make informed decisions
Many small and medium enterprises are adopting the BNPL scheme to maximize their tax deductions and manage their expenses with flexible repayment options and transparent fees. For the last 2-3 years, BNPL has been trying to establish itself as the alternative credit option in India. The growth of the e-commerce industry and the popularity of BNPL platforms during the pandemic will lead to the creation of growth opportunities for the Indian market.