A short guide to understand what BNPL service is, how it works, BNPL pros and cons, eligibility and its future in India.
When we think of borrowing or debt, the only options that come to our mind are credit cards and bank, right? But are these the only ones? Not at all.
The days of sound financial planning implying ‘no debt’ are long gone. Today, debt is an unavoidable part of life in this day and age.
A person may need to borrow money for a variety of reasons, both long and short term. (And it’s sometimes good, you know)
Today, online shoppers ‘want a product and want it fast.’ They don’t want to be limited by their bank account balance or lack thereof when they want to buy something that is out of budget.
That's where ‘Buy Now, Pay Later’ comes in.
BPNL service gives you instant credit of up to Rs 1 lakh with repayment terms ranging from 14 to 45 days.
BNPL providers are eager to sign up customers who have never used a credit card before.
Customers do not need to submit credit card information or CVV details anywhere because the terms are straightforward.
Even if clients miss payments, interest rates are lower, ranging from 0 to 24% versus 48% for credit cards.
A big number of fintech players have joined the market to bridge the financial gap between customers and their wants in response to the increasing demand for credit.
What is ‘Buy Now, Pay Later’?
‘Buy Now, Pay Later’, or BNPL for short, refers to a customer buying a product or purchase without having to pay for it right away.
It's a short-term loan product in which the BNPL service lender pays the merchant or service provider at the time of purchase and allows you to repay the loan at a later period with little or no interest.
However, after this interest-free period, full payment was required, or the interest from the initial purchase date would be added.
The payback can be made in one lump sum or in equal monthly instalments (EMIs).
According to HDFC Securities, India's 'Buy Now, Pay Later' market is expected to rise to $56 billion by FY26.
You can choose from a variety of BNPL services, including Amazon Pay and LazyPay. It is straightforward.
You don't have to speak to anyone, bargain, or wait any longer than necessary. In less than a minute, you may order your favourite chocolate cake on Swiggy using LazyPay and pay without using your account.
Users may be enticed by the fact that they can get credit right away, with no questions asked. It is a type of transaction that allows you to postpone payment by a few days, weeks, or months without incurring any additional fees.
The concept behind Buy Now Pay Later (BNPL) - allowing customers to break payments into smaller, more "affordable" instalments at the point of sale – isn't exactly new. So, what's the big deal about this?
By being seamlessly integrated into e-commerce as a checkout option, BNPL is currently redefining the customer journey. It basically makes it very simple, hence, merchant and consumer adoption is skyrocketing.
In India, the ‘Buy now, Pay later’ business is expected to grow tenfold. The BNPL market would be worth $45 billion to $50 billion by 2026, according to research firm Redseer.
The number of BNPL clients in the country might reach 80 million to 100 million, up from 10 million to 15 million presently.
Why Do People Use ‘Buy Now, Pay Later’ Services?
There are plenty of reasons why people love to use BNPL services:
- They don't want to pay interest on their credit cards.
- To buy things that would otherwise be out of their budget.
- To take out a loan without having to go through a credit check.
- They dislike using credit cards.
- They don't have enough money or the credit cards have reached their limit.
It’s not just the people who love using BNPL services, but the merchants too. Why?
- Increase sales
- Better checkout conversion.
- Reducing and eliminating shopper hesitations about purchasing.
- Lower interchange things.
- Increasing the average order value (AOV) and encouraging customers to purchase larger items.
- Creating a new source of income by charging interest on your loans
- Providing a branded client buying experience that is both holistic and enjoyable.
- Providing financing to customers without the necessity for a second piece of plastic, such as a branded credit card.
How ‘Buy Now, Pay Later’ Works
All BNPL providers offer the same service, the only difference is the terms and conditions. This is how the process normally goes:
- Make a purchase at a retailer that is a part of the programme.
- Choose 'Buy now, pay later.'
- Make a little deposit on the total purchase price.
- The remainder will be paid off in a series of interest-free EMIs.
Also, you can pay the EMIs by bank transfer, check, credit card, debit card, or direct from the bank account. Easy.
Pros and Cons of ‘Buy Now, Pay Later’
While the BNPL seems like a tempting option, it has its own disadvantages as well.
- Pay for purchases over time in a convenient and disciplined manner.
- Often have a cheaper interest rate than credit cards.
- To qualify, you need not have a high credit score.
- The approval process is fast.
- It's difficult to keep track of payments.
- Late fees and a poor credit score occur from missed or late payments.
- Purchases get no incentives or cash back.
- Even if an item is returned, payments may continue.
Eligibility for ‘Buy Now, Pay Later’ Service
To take advantage of the ‘Buy Now, Pay Later’ option, you must meet the following requirements:
- You must live in India.
- You must live in a tier 1 or 2 city.
- You must be over the age of eighteen. In some circumstances, the maximum age of eligibility is 55 years.
- You must be employed.
- You must have a bank account and all the necessary KYC documentation.
Big ‘Buy Now, Pay Later’ Players in the Indian Market
Here are some of the top BNPL players available in the Indian Market:
- Amazon Pay Later
- Paytm Postpaid
- Ola Money Postpaid
The Future of ‘Buy Now, Pay Later’
The future of BNPL might be quite bright, as the concept will attract more people who want to buy something they want right away.
Most lenders who provide this service provide no-interest EMIs, which are anticipated to become the preferred payment option in the future, particularly among the youth.
However, at its core, it is still a sort of loan that the consumer must repay in the end. Lenders who provide this service must stay cautious when doing so, as not everyone will be able to return the loan within the specified time frame.
Customers must comprehend the consequences of failing to repay the debt on time in order to prevent interest and a loss in credit score. Again, the future of BNPL appears bright, only as long as consumers are able to make effective use of the facility and pay on time.