buy-now-pay-later fever is high

the iPhone13 Pro Max was launched in September 2021 amidst much fanfare. even as the product arrived with a price tag of Rs 1.3 lakh, the ‘kidney memes’ seem to have been retired. if you are wondering why then the answer lies in buy-now-pay-later (BNPL). With BNPL, Apple lovers can buy the phone without paying immediately. 

the rise of aspirational customers has led to a sudden explosion of BNPL in India. the financing scheme offers flexibility to repay at a later date without being burdened with high-interest rates. In simplified terms, it is a loan without complications. and the dream run is only getting started. 

a research report by Redseer estimates that India’s BNPL industry will boom to $45-50 billion by 2026 compared to the current $3-3.5 billion market. the opportunity is so massive that even Apple wants to enter this space.

those with insufficient credit history and young customers with no prior credit history can avail of this financing scheme by simply filling up an online form. in 2022, payment providers like Mastercard and Visa are also planning to enter the BNPL fray in India.

making instant purchases 

‘Want a product and want it now’ is the philosophy that drives online shoppers today. customers eyeing an iPhone, a Gucci bag, or even a Rolex watch don’t want to be restricted by the money available in their bank account or the lack thereof. that's where BNPL comes in handy. 

offering credit up to Rs 1 lakh instantly with repaying tenures of 14-45 days. BNPL providers are keen to acquire customers who aren’t exposed to the world of credit cards yet. the terms are simple and customers need not enter credit card numbers or CVV details anywhere. even if customers miss out on payments, the interest rates are lower at 0-24% compared to 48% in the case of credit cards. 

considering these benefits, the surge in users is expected to be rapid. the Redseer research reported that India’s 10-15 million BNPL users will zoom to 80-100 million by 2026. these are essentially customers who don’t have the patience to wait for a credit card to be issued. so far, financial services providers have been choosy in offering pre-approved credit cards. BNPL should bridge that gap.

E-commerce drives growth

even as BNPL services are offered for online and offline shopping, it is e-commerce that is expected to drive its growth.

in 2020, BNPL accounted for 2.1% of global e-commerce transactions according to the FIS 2021 Global Payments Report. that figure is expected to double by 2024 when BNPL will account for 4.2% of global e-commerce sales. India, too, will feel the impact considering that its e-commerce market could clock $50 billion in sales by the end of 2021. 

domestically, while fintech players were the first movers in the BNPL space, banks are now offering stiff competition. in some cases, banks and payment providers have also tied up and are offering pay-later options. Ezetap, for instance, has partnered with Axis Bank to provide BNPL facilities and deploy these POS machines across retail outlets. 

specialized startups in this space have also seen rapid fund-raising action. BNPL startup Simpl has raised $40 million in Series B funding and is looking to grow its user base by 10 times. 

right now, it is the NBFCs and fintech companies that lead the charts in loan disbursal. data from Macquarie showed Bajaj Finance has disbursed 56 million BNPL loans, Simpl gave 49 million such loans, while Flipkart Pay Later offered 47 million pay-later loans as of November. 

startups such as LazyPay are also quickly expanding their offerings. the startup is planning to onboard over 1,000 merchants across sectors like edtech, insurance, EVs, e-commerce, and healthtech segments by March 2022. this will enable its 60 million pre-approved users to buy products, both online and offline, instantly.

customer is king

banking regulator Reserve Bank of India noted that even though the amount disbursed under BNPL loans is only 0.73% among banks and 2.07% by NBFCs out of Rs 1.41 lakh crore in FY20, the volumes are still quite significant. for banks, 37% of the number of digital loans were BNPL while 11.9% of the total number of digital constituted pay-later schemes. 

the volumes have been high so far because these loans offered by banks, NBFCs, and fintech firms escaped RBI scrutiny. an RBI working group has now recommended that digital lending schemes like BNPL be brought under regulatory control. if this control is exercised, the pay-later loans disbursed will have to reflect in the lender’s books. will this play spoilsport in the BNPL ecosystem? will unregulated entities survive this blow? 2022 holds answers to this puzzle.