While credit cards have long been the most favoured choice for boomers and millennials, Gen-Z is taking to “Buy Now, Pay Later” services.
Uncertain conditions in the market and lopsided economic growth has pushed people to focus a lot more on their personal financial health and improving their credit score. Clearly, the economic fall out of the pandemic and the increased use of digital solutions has also contributed to this.
And that’s how the Buy Now Pay Later (BNPL) service was set in motion. Financing large purchases by lending at the point-of-sale has proven to be an appealing option for several Indian consumers. BNPL is especially attractive to the younger generations who do not have a great credit history and are always on the hunt for alternative ways to fund purchases. They are also generally averse to opt for debt and prefer quicker alternative modes of borrowing.
Image credit: Clay Banks, Unsplash
Well, post-purchase installment programs are not new. Their ease of use, flexibility as well as the mutual benefit they bring to many phases of the value chain have made them one of the best forms of payment.
“The success of BNPL in the Indian context can be attributed to the fact that it offers formal microlending in an informal way, without putting customers through the cumbersome loan processes of traditional banks,” said Ram Rastogi, digital payment strategist.
What is buy now, pay later?
BNPL is a form of short-term financing, where instead of paying the full amount for your purchase, you can spread the cost into smaller amounts over an interest-free period. For many, it is one of the most convenient ways to purchase expensive branded goods that would otherwise remain out of their reach considering their monthly income and expenses.
Some of the major players in this industry are LazyPay, Simpl, ZestMoney, Amazon Pay Later, Ola Money Postpaid, Paytm Postpaid, Flexmoney, EPayLater and Capital Float.
Image credit: Neil Patel
BNPL has also helped the retail sector to generate more sales. Brands today pay percentage points to affiliate marketing platforms and BNPL providers position themselves as partners to help close a sale or drive more traffic.
How does it work?
When you use the “buy now, pay later” option at the checkout of an e-commerce retailer, the BNPL provider will pay your bill in full.
Subsequently, you need to repay the money interest-free to the BNPL provider in installments over a fixed period of time. However, if you miss any payment, then you will be charged an extra fee. However, sometimes these conditions usually vary from company to company.
Difference between credit card EMIs and BNPL
Well, until just about a few ago, if you would have heard someone say that you can buy the product and pay it later, it almost invariably meant that you would be using your credit card for the purchase. This would loop you in a cycle of paying for your purchase along with an interest rate.
Credit cards do not come with an interest for a period of 45 days, compared to 15 to 20 days in BNPL. For a delayed payment, the BNPL service provider can charge an interest of 20% to 30%, compared to 40% to 48% that is usually charged when it comes to credit cards.
BNPL services are usually available for low cost goods, the ones for which consumers can pay in a short period of time. So the maximum limit is usually up to Rs 1 lakh. Credit cards on the other hand, come with no limit at all.
Gen-Z leading the way
BNPL is recommended for young Indians who do not own a credit card. It is a hassle-free option compared to a bank EMI, is easy to use, and comes with zero paperwork.
Fintech companies are building an engaging rapport with consumers who shop online and also driving repeat behavior.
Posting a compound annual growth rate (CAGR) of 36%, India's BNPL landscape is expected to reach $100 Bn by the end of 2023. This in turn indicates just how popular these lending platforms are, even in their infancy, notes Rustogi.
Edited by Roshni Shroff
Cover image illustration by Pratyush Thaker
Some more resources to help you understand the BPNL landscape better: