How ‘Buy Now, Pay Later’ Expands India’s Credit Culture


Buy Now Pay Later (BNPL), a contextual credit solution, has huge potential in consumer credit in India due to its ease of transaction.

BNPL is likely to expand credit culture in a similar but limited way as UPI has expanded digital payment.
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There are only 30-40 million active credit cards in India, which is only 3 percent of the population. The ease of signing up for a BNPL solution, along with a quick and easy KYC to check eligibility in minutes, has made the BNPL solution popular.

How it works?

BNPL products between companies can vary widely in lending and repayment models (2 weeks to a month/instalment versus instalment). The average ticket size ranges from Rs 2,000 to Rs 10,000 to Rs 1 lakh.

A delay in the refund can lead to payment arrears of up to Rs 100 per day. Non-payment will not affect the customer’s overall credit score – the user profile will be blocked at most until payment is made. In the US, state law does not identify BNPL as a loan if the issuer charges zero percent interest.

BNPL companies partner with merchants as well as e-commerce companies to serve as a payment option. For traders, this is a great way to increase the value of trades.

Most BNPL providers are available at the checkout of online shopping platforms such as Amazon and Flipkart, food delivery companies Zomato and Swiggy, e-ticketing platform BookMyShow and all the biggest brands – online and offline.

BNPL is popular in various categories such as electronics (laptops and smartphones), home appliances, fashion, healthcare, furniture, travel, etc. Most BNPL service providers partner with other lenders to grant credit.

It is estimated that nearly 20 percent of all digital transactions in India were converted to pay later arrangements last year. Razorpay saw a year-over-year spike of over 150 percent in the number of BNPL transactions it facilitated in November 2020. Local BNPL players include Pine Labs, Ola Postpaid Plus, ZestMoney, Capital Float, Simpl, PayU India , ePayLater, etc.

Some BNPL players use alternative datasets to assess potential customers’ redemption options, including online behavior, history with merchants associated with the company, users’ phone models, and more.

Comparison with credit card

Worldwide, BNPL giants such as Afterpay (Australia), Affirm and Klarna have been very successful. But most of the volume here comes from customers who don’t have a credit card, ie they were expanding the consumer credit market, not cannibalizing it.

Logically, anyone who has a credit card (and is reasonably certain that they will pay it back on the invoice date) will never want to use BNPL.

The BNPL interest rates are almost as high as the APR for credit cards (Annual Percentage Rate) anyway, but with significantly higher credit costs.

While BNPL (ticket size ranging from Rs 2,000 to Rs 10,000 to Rs 1 lakh) can gain market share for some large purchases, most consumers will probably prefer to pay 1 or 2 credit card bills per month than multiple BNPL bills. There is also a lack of loyalty points in BNPL.

It is estimated that 40 percent of BNPL customers in India have a credit card. These customers have a low credit card limit (30-35 percent of credit cards have a credit limit of less than Rs 11,000).

The proportion of self-employed under BNPL is much higher at an estimated 60 percent compared to 30 percent with credit card. This partly reflects the bank’s reluctance to issue a card to New to Bank (NTB), Self Employed or Near Prime or Thin File (not agency tested).

It also partly reflects that credit card issuance is mainly concentrated in the top 10 cities, which has been a function of merchants’ underwriting infrastructure within these cities.

Debit and credit cards as well as Bajaj Finance have had a very successful EMI program in India for years.

According to a Visa survey, avoiding an annual fee (64 percent) and attractive rewards (59 percent) are the two most important factors for consumers deciding which credit card to use. The most important change is now the ‘digitization’ of BNPL towards online solutions.

BNPL is expected to provide access to customer segments below credit card income thresholds, with a stronger focus on stand-alone segments – helping to create/expand (buy/consume on credit) credit culture rather than compete with credit card.

[Smahi Foundation has recently released its report, ‘Digital Payments in India’. The author is the Head of Research at Smahi Foundation and a public policy expert based in Mumbai. She tweets @Ritu_twt. Views expressed are personal.]


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