A strategic alliance between PayU, a provider of digital financial services, and Amazon Pay Later will increase the availability of digital credit to millions of customers in India. The integration of Amazon Pay Later, a popular buy-now-pay-later (BNPL) service, into PayU’s checkout infrastructure will allow online retailers to give customers fast and flexible credit lines.
Among India’s 220 million people who could be eligible for credit, only about 77 million (or 35% of the total) are actually making use of various forms of credit, according to data compiled by TransUnion CIBIL.
The goal of this collaboration between PayU and Amazon Pay Later is to help more people get the fast, genuine credit they need to shop online.
“In our opinion, this cutting-edge approach has the potential to greatly improve merchants’ bottom lines and revolutionise the way fast credit is used by Indian consumers” stated Nikhil Mehta, PayU’s Senior Vice President of Payments Strategy and Partnerships.
PayU to Introduce Amazon Pay Later on Its Offers Engine Platform
Amazon Pay Later will be introduced on PayU’s Offers Engine Platform, in addition to the integration that will take place during the checkout process. This platform gives merchants the ability to make personalised offers throughout the checkout process, which further improves the consumer experience and strengthens customer loyalty.
As a result of the incorporation of Amazon Pay Later, customers will have the opportunity to obtain quick credit, which is anticipated to result in an increase in the average ticket size for businesses.
The Director of Amazon Finance, Vikas Bansal, also mentioned that this relationship is a step towards improving customers’ access to credit and simplifying their financial transactions. This is something that is being done for customers all around India.
About PayU
Prosus is an investor in PayU, a prominent digital financial services provider in India. PayU’s companies are governed by the Reserve Bank of India, and the company provides cutting-edge solutions to fulfil the digital payment needs of the Indian market. The organisations that make up PayU India are working towards a same goal: to build a digital financial services platform that can meet all of their customers’ financial demands, both those that have been met and those that have yet to be.
Through its innovative and award-winning technology, PayU has enabled 5 lakhs+ businesses, including some of India’s most prominent organisations, eCommerce giants, and SMBs, to accept payments online. With it, companies may accept digital payments through more than 150 different online payment options, including EMIs, pay-later, QR codes, UPI, wallets, and more. It provides easy-to-implement connections across card-based EMIs, pay-later alternatives, and new-age cardless EMIs, as well as comprehensive issuer coverage, making it a favoured partner in the affordability ecosystem. PayU guarantees a smooth checkout process and offers eCommerce firms the best success rates in the market.
ZestMoney, the buy now pay later platform, is set to cease its operations by the end of December, according to an internal communication to its staff. The company, currently employing around 150 individuals, is compelled to take this step as it grapples with financial challenges, despite efforts to revitalize its operations. In a setback earlier this year, ZestMoney faced the departure of its three co-founders, Lizzie Chapman, Priya Sharma, and Ashish Anantharaman, following unsuccessful attempts to secure new funding and finalize an acquisition deal with PhonePe, a digital payment platform.
In a statement released in May, ZestMoney outlined a strategic shift, emphasizing a focus on core digital EMI and personal loan products while discontinuing SaaS and insurance business operations. Over the past six months, the company’s digital EMI product has faced challenges, encountering resistance not only from consumers but also from crucial partners such as payment aggregators, eCommerce platforms, and non-banking financial companies (NBFCs).
Prosus, an investor with a significant 19.4% stake in ZestMoney, wrote off its $38 million investment as the company grappled with its financial downturn. Media reports indicate that ZestMoney terminated over 100 employees during a transitional phase. Despite raising approximately $5-7 million in seed funding in July, the company’s financial struggles persisted, culminating in the decision to shut down.
ZestMoney, which has raised a total of $125 million, including debt financing, experienced a decline following the implementation of new guidelines for Buy Now Pay Later (BNPL) companies by the Reserve Bank of India in June 2022. The regulatory measures prohibited non-bank prepaid instrument issuers from loading instruments with credit lines.
As part of its wind-down strategy, ZestMoney intends to retain a minimal finance and legal team. This team will focus on selling the remaining assets of the business to a suitable buyer and overseeing the closure process. Although it is unlikely to attract interest from major fintech companies, there is speculation that a traditional NBFC might consider acquiring the technology in a potential firesale.
Established in 2015, ZestMoney initially operated as a loan-sourcing platform, facilitating rapid credit disbursal at the point of sale, particularly for online merchants. Collaborations with prominent eCommerce players such as Flipkart, Amazon, Myntra, and Nykaa were key to offering pay-later services. Following the breakdown of acquisition talks with PhonePe, ZestMoney attempted a shift in its business model, offering its technology stack as a white-label solution to other fintech lenders and NBFCs.
ZestMoney’s Loss Surges; Operating Revenue and Expenses Rise
Fintechs Learn from ZestMoney’s Cautionary Tale
Financial technology (fintech) experts suggest that stringent regulations have prompted non-banking financial companies (NBFCs) and banks to reassess their associations with digital lending platforms. The rapid expansion of the personal loans sector through these platforms has raised concerns at the central bank for an extended period. The Reserve Bank of India (RBI) has consistently urged banks and NBFCs to exercise greater responsibility when engaging with digital platforms for lending. Additionally, pressure from civil rights groups has mounted, advocating for the elimination of predatory lending practices and addressing concerns related to recovery harassment.
The recent adjustment in risk weightage by the RBI has further complicated these partnerships. While there were speculations about the potential impact on the Buy Now Pay Later (BNPL) business, particularly for platforms like Paytm, the fintech giant has refuted such claims. However, it is anticipated that fintech companies operating in the realms of small-ticket personal loans and BNPL may encounter significant challenges in the coming months.
The closure of ZestMoney serves as a notable example of how heightened regulations can profoundly disrupt the operations of fintech startups. Numerous fintech ventures have expanded into digital lending in recent years, and the regulatory shifts pose a threat to their continued operations. In August of this year, two major consumer internet giants, Flipkart and Swiggy, announced their foray into lending. While Swiggy ventured into the co-branded credit card segment, Flipkart set its sights on the personal loan business.
Google Pay has also intensified its collaborations for both personal and merchant loans. Another major player, CRED, entered the lending arena with a BNPL product in 2022 and is currently exploring opportunities to expand its lending product offerings. Despite the saturation of the market with various digital lending platforms, the RBI’s decision to elevate risk weights appears to be a preventive measure against potential long-term catastrophes.
Fintech startups are recognizing that regulatory compliance is a fundamental aspect of their sector, and not merely an exception. In some ways, startups are acknowledging that merely activating digital lending channels may not suffice. In this context, the case of ZestMoney serves as a cautionary tale for the broader fintech ecosystem.
The COVID-19 lockdown brought a dynamic shift in how consumers interact with businesses. Along with this, it saw a huge increase in digital adoption and more people are online than ever before. With e-payments in full swing, it gave online retailers the option to integrate their e-commerce platform with BNPL service companies.
While shopping online, most of you would have come across websites that allow Buy Now Pay Later (BNPL) service while shopping on their website. However, with a sense of scepticism about online banking, we never quite reached out to find out what it all meant.
As online stores are gradually becoming more aware of their customer’s needs and requirements, they are simultaneously coming up with customer-friendly payment solutions. All these solutions are continuously being integrated with e-commerce platforms.
In addition, BNPL service companies and traditional banks have entered into the system allowing similar payment arrangements. So, what is a BNPL service provider? How does it work? Let’s find out
Once a completely unknown concept, BNPL companies are slowly starting to make their way into the world of e-commerce. A “Buy Now Pay Later” company allows customers to pay for goods and services in a series of instalments rather than paying the full amount upfront.
A few popular examples of such BNPL companies include apps such as AfterPay, Affirm, Laybuy, Klarna, and others. A BNPL service provider, popularly referred to as BNPL apps are easy to use and generally has low-interest rates and high credit limits allowing customers to make common purchases with ease.
BNPL service providers develop and create an app-based form of payment that can be used for both in-store and online payments. The BNPL model is relatively similar to a credit card as BNPL apps allow users to pay for items in a series of instalments over time.
In simple words, a BNPLis a micro-credit option that allows you to shop online and pay off the amount in either days or weeks with little or no interest whatsoever. The rise in BNPL services has filled in a huge gap brought about by the pandemic. Apart from the e-commerce platform, BNPL service options can now be found on food delivery, travel booking, grocery shopping and other relevant platforms as well.
How Do BNPL Service Providers Contribute to E-commerce?
Not just an e-commerce platform, BNPL Service App can also be used for in-store payments. Every time a consumer buys a product using the BNPL Seva App, the seller (merchant) gets the full payment instantly. Meanwhile, the customer can pay the fee in a series of instalments over time.
Moreover, these BNPL applications charge no interestfor customers that stick to their payment deadline. The process of using a BNPL app is simple. Approvals are straightforward and BNPL Company can run a quick and easy credit check that will not affect your credit score.
Top 11 BNPL Product Categories
BNPL service applications not only benefit the customer but also have several advantages for retailers and online store owners. There are several reasons why an online store owner chooses to integrate a BNPL service into its e-commerce platform. Such benefits are
Makes it easy for merchants to sell to a particular of customers who use a BNPL service regularly
Offers customers the ability to buy an item even when they don’t have the full amount upfront.
Stay on top of the market competition or try to get an edge over the market by matching the customer experience offered by other market players.
Helps improve and increase consumer spending by enabling customers to make larger purchases without requiring a credit card.
This opens up another market segment comprising a young audience that has a higher shopping frequency.
Recently, BNPL companies have started to market various brands they work with by mailing vouchers and other exciting offers directly to their customers either via email, newspapers and others. The primary intent behind this isn’t to attract new customers, but to increase the purchasing frequency of the existing ones.
Top 10 Best BNPL Service Providers
The market is highly dynamic in the 21st century. So, if you are a store owner or an e-commerce website, you must be aware of the market trends to better serve your customers and create a completely satisfactory user experience.
Along with this, you need to pay due attention to the payment method used by your customers to pay for their purchases. Being aware of this will only aid in customer satisfaction and help improve the purchase frequency of your existing customers. To achieve this, many e-commerce websites have integrated themselves with BNPL service companies, allowing their customers to have BNPL options as they check out. However, given the abundance of BNPL service companies at your disposal, choosing the right company for your business can be difficult.
To make things easier for you, we have put together the top 10 BNPL service providers that you can opt to go for in 2023.
Simpl
Rating
4/5
Founded
2016
Beneficial to both merchants and customers alike, Simpl was launched in India way back in 2015. Over a period of time, it has grown to become one of the largest players in the BNPL segment in India. Launched as a mobile-first platform, Simpl offers instant approvals that allow a user to pay with a single tap.
Simpl
With Simpl, you have the option to pay later at your convenience. Alternatively, you also have the option to pay in a series of 3 instalments with zero additional charges. Simpl is known to have partnered with 4,500 sellers and merchants across India with a customer base of almost 7 billion.
Pros:
Customisable checkouts option
You can do mobile payments anywhere
Cons:
No free trial provided
Monoova
Rating
4.2/5
Founded
2017
If you are looking to add to the efficiency of your payment workflows, then Moonova’s API integration is exactly what your business needs right now. Thanks to the app’s simple API integration, you get instant account reconciliation, real-time debts and payments, and can assign unique account numbers to the different accounts on your payroll.
Monoova
Moonova uses multi-factor authentication that helps to protect you from online fraud, phishing, and other malicious websites by adding another solid layer of security to all your transactions. The company has recently partnered with Truelayer, a global leader in open banking to ensure smarter, faster, and streamlined data-enabled payments in the market.
The platform’s rock-solid algorithm allows you to conduct the heaviest of transactions with maximum ease. Additionally, the platform offers local support at all times followed by easy-to-use developer tools that you can use within your existing infrastructure
Pros:
Streamlined data-enabled payments
Muti-factor authentication
Maximum stability
Cons:
Needs regular updates and maintenance
PayPal Pay Later
Rating
4.4/5
Founded
2020
Whether you are a small business owner or a company with your own name, PayPal Pay Later is a great option for both. Not only is this great for business owners, but it is also highly convenient as a payment method for BNPL application buyers, allowing them to opt for PayPal Pay Later credit plans.
PayPal Pay Later
The PayPal Pay later credit plan allows users to choose from six to 36 months as their preferred payment plan. Business owners using PayPal for their transactions have direct and automated access to BNPL services. For this, all the business holders need to integrate the BNPL option of PayPal on their website.
Though the app is not compatible with in-store purchases, it integrates with most of the e-commerce platforms present in the market. Finally, PayPal offers a PayPal Purchase Protection Plan that assumes all credit risk and can be used for all PayPal purchases.
Pros:
Low processing fees
PayPal purchase plan
Integrates with most eCommerce platforms
Cons:
Not available for in-store purchases
High late fees
Afterpay
Rating
4.1/5
Founded
2014
Afterpay is a pay-in-four BNPL app that lets users enjoy interest-free instalments with a guaranteed payment of 48 hours to the seller. This BNPL service primarily caters to the needs of Gen Z who are learning to manage money on the go. Smart cards have limits for customers who want to inculcate good spending habits. By 2022, the app has been integrated with around 19 e-commerce websites and can also be used as an API. Operating in 8 countries, the app does not charge any cross-border fees.
Afterpay
Although pricing is not available on the website, popular user reviews indicate that this BNPL service charges between 4% to 6% plus 30 cents per transaction. As a Gen Z shopper, all you need to do is add Afterpay to your digital wallet.
Unlike PayPal, Afterpay is available for both in-store and online purchases. When using Afterpay, you need to put down 25% of the amount in the first phase and then pay the balance in six weeks without any interest charges.
Pros:
48-hour guaranteed payout
Works on the POS system
Integrates with several eCommerce platforms
0% APR
Cons:
Pricing not available
No monthly financing plan present
ZestMoney
Rating
4.2/5
Founded
2015
ZestMoney has rapidly grown to become one of the fastest-growing fintech companies in India. Similar to most BNPL services, ZestMoney allows users to make online purchases and pay back the money in a series of instalments with minimal interest charges.
ZestMoney
The platform’s algorithm integrates mobile technology, digital banking and AI under the same bracket to provide capital access to those who cannot afford loans through traditional mediums. However, unlike the rest, ZestMoney is designed explicitly for heavy purchases such as furniture, flight tickets, or other so on that aren’t covered by other BNPL lending platforms. The app offers interest-free instalment options to select merchants for a period of six to ten months.
Pros:
No-cost EMI on selected platforms
Instant loan approval and disbursal
Flexible EMI options
Cons:
Caters to heavy purchases only
The issue with user privacy
Klarna
Rating
3.5/5
Founded
2005
Klarna was started by the Stockholm School of Economics and is one of the most popular BNPL companies of the 21st century. With Klarna, you shop and you have the flexibility to split your purchases into 4 simple interest-free payments.
Klarna
You can get more time to make payments whenever you need them by simply extending your due date in the app. Once all the payments are done, all you have to do is report it on the app and all the payments will automatically stop. Shop wherever you are and pay directly from a desktop, smartphone or in-store.
Pros:
Available online and in-store
Multiple payment structures
Available in multiple countries
Cons:
Each purchase requires Klarna’s approval
High late fee
Zip
Rating
4.8/5
Founded
2013
Earlier known as Quadpay, Zip provides savvy buyers with greater freedom and essential flexibility to make payments anytime, anywhere using the BNPL platform. Established in Australia in 2013, this BNPL service extends to more than 12 international markets.
Zip
Whether you are a shopper or a merchant, Zip offers transparent and interest-free credit options to all that don’t hassle or disrupt the traditional credit card model. Similar to Klarna, Zip allows you to pay in 4 interest-free instalments. With Zip, you can pay for products directly using your phone or in-store.
Sezzle has now over 3 million active users comprising over 50,000 merchants on its platform. Operating primarily in the US and Canada, Sezzle serves as an alternative payment platform with 4 instalment free payment options spanning over 6 weeks.
Sezzle
As a certified nonprofit B corporation, you have the flexibility to reschedule your payments for up to two weeks at a time. You can shop and pay for your favourite brands both online and in-store using the Sezzle app.
Pros:
Options to Reschedule Payments
Virtual Credit Card Options are available both online and in-store
Cons:
Missed payments result in Account deactivation
Single Payment structure
Affirm
Rating
4.3/5
Founded
2017
Since 2017, Affirm has financed over 17 million purchases and is currently available to more than 30,000 retailers in the US. The company primarily operates in financial lending of instalment loans to their customers for use at every PoS purchase.
Affirm
Depending on your payment plan and eligibility, you can avail of up to 0-30% interest. This US-based BNPL service provider provides you with a flexible, transparent, and more convenient way of helping customers pay overtime as per the payment selection made by the customer.
Pros:
It has email Notifications
It has Customer Portal for financial tracking
Cons:
Very high-interest rates which vary from 10%-30%
It requires a credit check
Upstart
Rating
3.3/5
Founded
2012
The greater the access to affordable credit schemes, the greater the risks and associated costs. However, Upstart is a leading AI lending platform that works with banks and credit unions to help consumers settle their loans with simple payment plans.
Upstart
The process of applying for an UpStart loan is quick and easy. You start by checking eligibility without worrying about whether or not it will affect your credit score. Even if you are not eligible for the amount you requested, they offer some other options. You can then choose different amounts to get estimated APRs.
Pros:
Available In-store and Offline
Active Notification
Cons:
Single Payment Structure
Conclusion
Since the onset of the COVID-19 pandemic, the world has become a bit reluctant to venture out to shop. This has put an emphasis on online shopping in a big way allowing more and more e-commerce platforms to grow and develop every day. Meanwhile, online retailers and e-commerce websites are also making more efforts to match the user experience as per the market competition. For this, most of the e-commerce platforms have implemented a convenient BNPL service.
Without further ado, BNPL services are already making an impact on customers and vendors alike. Looking at the pace at which it is developing, BNPL service companies are all set to become a big element of both in-store as well as online shopping in the years to come. Whether you own a store or an e-commerce website, you need to be updated about the modern payment methods customers use to make their purchases. Doing so will only aid in customer satisfaction and ultimately generate more sales.
FAQ
How much do BNPL providers charge merchants?
Most BNPL retailers do not publicly disclose their merchant fees, but they typically range between 2% and 8% of a customer’s purchase amount.
What are BNPL services?
Buy now Pay later or BNPL is a type of instalment loan. It divides your purchase into multiple equal payments, with the first due at checkout. The remaining payments are billed to your debit or credit card until your purchase is paid in full.
What is Amazon BNPL?
Amazon Monthly Payment is a buy now, pay later (BNPL) option. However, if it isn’t offered on your product or does not meet your payment needs, you could choose a third-party BNPL provider.
Is BNPL a product or service?
BNPL products are credit products, just like any other loan, and will take regular repayments from your bank accounts or credit card.
Is BNPL a payment method?
The buy Now Pay Later (BNPL) scheme is a method of payment which allows consumers to pay for their purchases in short instalment periods without any interest charges or fees.
One of the fastest-growing segments in consumer finance is BNPL (Buy Now Pay Later) firms. A market segment that was worth 33 billion USD in 2019, according to GlobalData, had grown to 120 billion USD by 2021. The business model of BNPL firms emerged from extremely low-interest rates that allowed these firms to raise funds at low cost and offer point-of-sale loans to customers on online shopping websites.
Amid the Covid-19 pandemic, millions of Indians took advantage of eCommerce as online shopping gained a stronghold. Many of these shoppers did not own a credit card and opted for interest-free credit facilities at checkout points. To cater to this rising demand, online platforms and facilitators, who are mostly fintech firms like ZestMoney, LazyPay, Simpl, Pine Labs, and Capital Float, were willing to undertake the risks.
How BNPL startups are disrupting India’s lending space?
The Growth of BNPL
Global Transaction Value of Buy Now, Pay Later in Ecommerce from 2019 to 2026
As the economy slowly opened with restrictions, after the severe Covid-19 lockdown, the oncoming festive season of Diwali saw eCommerce firms like Flipkart and Amazon offer various fintech and credit products to make buying more affordable for their customers. In a bid to widen their customer base, these eCommerce sites made these offers available in Tier 2 and Tier 3 cities as well.
Rajeev Kumar K, Senior Vice President, Market Development, South Asia of Mastercard said – “To encourage sales this festive season and making products more affordable for consumers, merchants are partnering with banks to come up with varied co-branded cards. For instance, Mastercard has a co-branded card with Flipkart and Axis Bank that offers higher reward points, cash backs and other benefits on making card purchases at partner brands.”
Backing this statement was Vikas Bansal, Director of Amazon Pay, who said, “We have definitely ramped up the coverage of our EMI-based credit products to help customers with affordability, keeping their monthly budget in control. Debit-card EMI will be a critical product for Tier 2 and 3 buyers this festive season. We have also increased the down payment cycles from 6 months to 9 months for credit card holders.”
He further went on to say that no-cost EMIs accounted for two-thirds of all EMI purchases on Amazon in 2020. Amazon launched the ‘Pay Later’ product in April of 2020 and by October of that year had already offered more than 10 lakh loans.
By 2021, consumer sentiment seemed to be peaking in light of higher vaccination rates. Indians were shrugging off the impact of a second wave of the coronavirus, which gave companies the confidence to look forward to a bumper festive season in 2021. This optimistic outlook was aided in large part by the flexibility to pay later.
The BNPL market size in 2021 was worth USD 132 billion which is expected to grow at a CAGR of 45% and reach an estimated value of USD 3680 billion by 2030.
Shop Now for Diwali and Pay Later With Flipkart Pay Later
The Buy Now Pay Later concept continued to grow during the festive season of 2021 with multiple eCommerce players seeing disbursals growing by more than 100% in comparison to the festive season of 2020.
LazyPay, the BNPL platform of Prosus-owned payments major PayU, saw a rise of 300% in credit demand, particularly in segments like travel, food & beverages and entertainment.
Anup Agrawal, Business Head at LazyPay said, “We also saw an uptick of 70 per cent in user acquisition in the last two months. Around 60 per cent of the demand is from tier-2 and tier-3 cities, specifically outside of the top 10 cities in India, while the average age of consumers is 26-27 years.”
Prateek Jindal, Co-Founder and Chief Product Officer of Uni, a BNPL startup, said they saw a 100% increase in their transactions, both in volume and value, within the first four months of beginning operations.
He went on to say, “We are currently doing more than Rs 100 crore of monthly disbursals and the peak spend per day in the season was 200 per cent higher than the average.”
Lizzie Chapman, Co-Founder and CEO of the Bengaluru-based startup, ZestMoney, confirmed that the company added 5x new customers in October of 2021 and intended to cross a gross merchandise value of USD 1 billion in the financial year.
The eCommerce giant Flipkart too joined the bandwagon and raised the credit limit of its pay later service from INR 10,000 to INR 70,000 in September 2021, ahead of the festive season. For Flipkart, this move proved hugely successful as they witnessed a 4x increase in the number of transacting customers opting for Flipkart Pay Later.
A company spokesperson said, “India is traditionally a credit averse market and the Coronavirus (Covid-19) pandemic’s impact has increased reliance on credit solutions. Access to credit is a key unsolved need for Indian customers who want to manage their expenses, while also fulfilling their aspirations.”
BharatPe, the fintech unicorn, launched its BNPL platform PostPe and saw a daily average disbursals grow by 2X reaching INR 6 crores within the first two weeks of launch.
Suhail Sameer, CEO of BharatPe said, “The top spends were in categories like cabs, QR transactions at grocery or small retailers as well as electronic purchases- these are ones that witness a spike during the festive season. We expect the numbers to stay steady post festive season as the awareness for the product has grown manifold in the last one month.”
Most of the eCommerce players witnessed an increase in spends on categories like apparel, electronics, grocery, cosmetics, and food delivery.
The payments company, Ezetap integrates BNPL with point-of-sales machines and at the checkout of eCommerce platforms. Ezetap recorded a 73% increase in Pay Later transactions volume and a 136% rise in transaction value during 2021 Diwali. It also recorded a 3% rise in the average ticket size of BNPL transactions.
The trending surge of BNPL shows no signs of slowing and is likely to grow exponentially in the coming months and years. The oncoming Diwali season is showing an increased demand for BNPL as consumers are eager to indulge in high-value shopping with the Pay Later options readily available on most mega eCommerce platforms.
FAQs
What is BNPL?
BNPL, short for Buy Now Pay Later, is a financing option that enables customers to buy a product or service and pay for it later within a specified interest-free period.
What is the best BNPL in India?
Some of the top BNPL apps in India are:
ZestMoney
LazyPay
Amazon Pay Later
Flipkart Pay Later
PostPe
How does BNPL help push eCommerce sales during Diwali?
BNPL plays an important role in pushing eCommerce sales during the Diwali season. It gives customers more control over how and when they want to pay for their products or services. This leads to a better customer experience which in turn helps in increasing sales.
Buy Now Pay Later – It’s convenient, accessible, and consumer-friendly. But, is there more to it?
India’s BNPL market is estimated at around $3 billion as we write this, but, it is about to explode if data science is to be believed. The predictions hint that it will be among the top 10 fastest growing market sizes in India, and in just 4 years, it would be at $45 billion!
For an industry that big, regulation has to be fail-proof.
In a recent directive, the Reserve Bank of India (RBI) has made it clear it doesn’t trust these BNPL companies. RBI has decided to look deeper into their business models and how they extend credit lines via Prepaid Payment Instruments (PPI) to their customers, when there is a clear lack of…almost everything: Transparency, Administration, Licenses, and above all, A SYSTEM!
To be clear, RBI hasn’t come down cold on just BNPL, it is looking at non-bank fintech lenders and even smaller banks that use PPI to load their wallets or extend credit lines.
But, wait, let’s take the story right from the start. Too many questions, right!
What is BNPL? What is PPI? Why is the RBI up on its case? What does it look like for users?
What Is BNPL?
To begin with, the idea of buying now and paying later isn’t so new. You may be surprised to know it all began in the late 19th century when businesses around Europe started extending loans to industrialists. These loans were material-based. Industrialists had the option to buy goods and pay for them later. Of course, in this model, they had an interest rate.
In the early 21stcentury, fintech providers made “Buy Now Pay Later” a digital facility.
In the way BNPL goes around now, there is a no-interest period today. Buy Now Pay Later is a scheme where a consumer, such as yourself, can purchase an item without paying for it instantly.
Though you will be required to pay back, it gets easier for those who don’t have cash. Instead, you get to divide the cost of the goods in the form of an easy installment or zero-interest loan.
The payments can be made within 90 days, unlike conventional loans that go on for years. Now, if you settle the payment within the pre-decided time frame, you pay no interest. But, if you cross it, yeah, there is going to be a penalty on the overdue.
This is the basic working of the BNPL utility.
BNPL has made quite a mark. 60% of people making purchases online have used BNPL services. Major players in India include Jupiter, Ola Pay, Postpe, ZestMoney, LazyPay, and Simpl.
Their data show that most of their users are 18-25 years old. The millennial generation made up to 20% of the BNPL users. In 2021, ZestMoney published a report saying that their millennial users increased by 2x, and their GenZ customer base grew by 3x during the pandemic alone.
What Is So Tricky About BNPL?
Debt
Even though BNPL is marketed insidiously as a convenient paying option or a way of life, BNPL is still a debt. When you opt for BNPL, most financial institutions open a loan account in your name. This loan account is added to your credit history.
Credit score
Once a loan account in your name is opened, this small debt is added to your credit score. If you default on a single payment, it will go into your credit history. This could affect your credit score and loan-taking ability too.
Regular shopping via BNPL is a ticking bomb
The BNPL scheme was introduced to capture a market of 300 million households in India, which did not have the credit score to afford things.
Tier 1 and 2 cities saw more men spending on fashion and lifestyle while women used BNPL for upgrading their electronics and education. During festive seasons, BNPL services were used 10x more for purchasing smartphones, electronics and fashion.
Transactions through BNPL services increased by 200% during festive seasons on apps like Amazon, Myntra and Flipkart. Surprisingly people also paid for their travel costs through BNPL services.
How Customers in Different Cities Spent Using BNPL
When almost everything is purchased with an option to pay later, we run into a liquidity freeze. We also run into more chances of late payments and bad credit scores.
High-interest rates
If you default in payment of this loan, apart from your credit score getting affected, you will be liable to pay interest of about 30% to 45% per annum.
Spend more
The Buy Now Pay Later scheme makes you purchase more items by spreading the installments out conveniently over months. Even though these installments are easy to pay, you still pay a higher extra cost. An alarming 59% of BNPL users admitted that they spent more by using the services.
Young users
Most of these BNPL companies have young users with no credit score. No one in the credit market will give them a loan; therefore, BNPL is the only way to purchase what they want.
What makes this worse is that most of these BNPL users do not have a job to pay off these loans. They are likely to default or go under major financial stress. This is reflected in the 5% default rate of payment for ZestMoney, a top BNPL market player in India.
Inflation
No one realises that a BNPL utility might as well have a floating interest rate with it. A fixed interest rate doesn’t change for the tenure, irrespective of RBI’s repo rate. However, floating rates do. An increase in inflation will increase the interest rates. This could impact the loan bearers negatively.
Lack of transparency
Most firms are opaque in their loose regulations to get more customers. For instance, take the interest rate: is it floating? Is it fixed? In fact, take the recent RBI directive. No BNPL issuing lender has officially declared the ongoing probations and how they plan on complying. It is estimated that these new rules will impact 8 million users in India, who are yet to hear a plan to course-correct this.
How Often Customers Used BNPL Services in 2021
What is PPI?
Prepaid Payment Instruments are essentially cards, wallets, or any other avenue where you could store your money, and later use it for shopping, remittance, and even investments.
Now, the problem with using credit lines to load your PPI is that the customer doesn’t really have that money.
But, they can spend it! they can also default payments that he/she has to make to the credit provider. This creates a gap. Hence, the RBI directive.
So, is this a bubble waiting to burst?
Conclusion
Well, history would point out that BNPL has been a mess in the past as well.
A tragic example of the BNPL scheme was the 2002-2008 market crash in America. Many people were offered house loans at a 0% interest rate during these years. The policy-writing and interest regulations were dodgy, and the result was that borrowers defaulted and ended up without houses but with loans to retire.
The RBI tightening its fists against loose financers is a step in the right direction if it meets execution without much ado.
FAQs
Is BNPL available in India?
Yes, the BNPL model is available in India and has gained massive popularity since it was introduced in India. many consumers are purchasing smartphones, electronics and fashion products.
What are the risks of BNPL?
High-interest rates, lack of transparency, overspending, and huge debts are some of the risks related to BNPL.
Why is Buy Now Pay Later so popular?
Consumers prefer BNPL as they can buy their favourite products without worrying about paying the money upfront.
Klarna, a European buy-now-pay-later (BNPL) service provider, is raising investments at a valuation of $15 billion. There was a dramatic decline in their mid-2021 $45 billion valuations and the estimated 2022 $30 billion figure. In recent quarters, not just Klarna, many fintech companies have fallen sharply.
Klarna is the second-largest BNPL service provider. It allows interest-free finance to consumers. These services have gained popularity, especially after the COVID-19 pandemic.
The latest investments in Klarna were led by SoftBank’s Vision Fund 2. They cement its status as one of the finest fintech startups by valuation. However, this market is deteriorating at a rapid rate and the best-known private fintech company is caught in the mix. Here’s why Klarna’s valuation dropped from $45 billion to $15 billion in 2022.
Klarna is a Sweden-based fintech company. It was established in 2005 in Stockholm. Niklas Adalberth, Sebastian Siemiatkowskiand Victor Jacobsson are the co-founders. Their sole purpose is to make online shopping effortless for consumers.
Klarna, also known as Klarna Bank AB, offers numerous online financial services. These include direct payments, online storefronts or BNPL services. Since 2005, Klarna has been on a mission to make payment as simple, safe, and smooth as possible.
After serving the world for over 17 years, Klarna is now the world’s leading global payments and shopping service. Today, it holds almost 147 million users with more than 400,000 merchants across 45 different countries.
Klarna Valuation to Drop From $45 Billion to $15 Billion
The Swedish fintech company is seeking to raise funds at almost three times less valuation. Last time the company closed the round at a valuation of $46 billion with SoftBank, becoming the world’s second valued startup. However, on Friday Wall Street Journal reported that the valuation shrank to $15 billion while raising $500 million from investors. The journal reported that last month Klarna had pitched a proposal of $30 billion to the investors, which now closed at $15 billion.
Valuation History of Klarna
Why Is Klarna’s Valuation Declining?
Last month, the Journal reported that Klarna’s CEO Sebastian Siemiatkowski made public the company’s situation. Citing market constraints, he announced that the company was laying off 10% of its international workforce.
Through a pre-recorded video message, he said, “We are strongly influenced by the outside world. When we set our goals for 2022 in the autumn, it was a very different world than the one we have today. What we are seeing now in the world is not temporary or short-lived, and hence we need to act.”
In the same week, Sifted reported that the company’s pre-tax losses have tripled to $250 million in the first three months. BNPL startups, such as Klarna, survive a low-interest-rate environment. Merchant fees and late payment charges bring enough revenue but the margins have been narrowing, as of now.
The company’s CEO also spoke about how users are gravitating towards debit and rejecting interest-and-fee-laden credit. He said, “Consumers continue to reject interest-and fee-laden revolving credit and are moving toward debit while simultaneously seeking retail experiences that better meet their needs,”
“More transparent and convenient alternatives align with evolving global consumer preferences and drive worldwide growth,” he added.
The Situation of Klarna in 2022
Starting in 2022, when Klarna submitted its first-quarter report, it was noted that 10% of the staff were terminated. However, speaking over the report, the company said that “still seeing strong growth across the business”, it was “time to consolidate and capitalize on strong foundations”.
Now, looking at the huge financial loss, it seemed that this was the reason why the company decided to cut costs.
As per the report, Klarna’s last fundraise was way lower than the previously raised value. They planned to raise a total of 1 billion dollars with a valuation of 30 billion dollars. However, the board conference didn’t go well and they had to adjust with a valuation of 15 billion dollars.
Thereby in an attempt to cover the losses, Klarna’s CEO in early June declared that it would terminate its global employees. As a result, approximately 700 employees would lose their jobs.
Investments & Backers of Klarna in 2022
Swedish battery maker Northvolt raised $2.75 billion in a round valuing the company at $11.75 billion. According to Pitchbook, 2021 set a record for European tech startups raising $52B. As of June 22, European startups have already raised $45 billion.
“The international money is coming into Europe,” Hans Otterling, general partner at Northzone and an early investor in Klarna, told CNBC. “For Silicon Valley, the talent pool has been depleting for some time. We have a huge talent pool in Europe.” Klarna’s other backers include the likes of Chinese fintech giant Ant Group and U.S. rappers Snoop Dogg and ASAP Rocky.
Last month, Klarna was hit with a data breach. Consumers reported that they were being logged into others’ accounts. This caused the company to officially shut down their app.
They addressed the issue later through a blog post. They stated the bug was caused by “human error” and that it had “informed appropriate authorities.” However, this affected more than 9500 Klarna consumers.
Almost 73% of all e-commerce exchange transactions drove through Klarna. Due to the everlasting customer acquisition, the company claims to hold a valuation of a total of $45.6 billion in 2021. It is seconded by investors across the world. Some of them are Silver Lake, Dragoneer, Permira, Atomico, Sequoia Capital, Ant Group, Bestseller Group and Visa.
FAQs
What is the valuation of Klarna?
The valuation of Klarna is $45.6 billion but is predicted to drop down to $15 billion.
Who founded Klarna?
Sebastian Siemiatkowski and Niklas Adalberth founded Klarna in 2005.
What is the revenue of Klarna?
The revenue of Klarna was $1.42 billion as of 2021.
If you’ve purchased something online, you may have observed the feature to buy now and pay later, that’s becoming increasingly common across e-commerce platforms. And you may have observed this feature in offline places as well, such as retails, and for several folks, this choice is very effective because usually, you’d have to save up until you could purchase that fancy new pricey item that you want to shop, no one intends to do that, notably if it’s on sale now and won’t be in a couple of months. We need things right now.
We wish to shop for them now and pay for them subsequently, and the typical approach was a form of credit or a credit card. However, obtaining a credit card in India is not always simple, and when you do, you’ll be hit with a slew of interest charges. You are mysteriously in debt, if you’re not cautious, that credit can take ages to pay off.
So, either you save for quarters or you go into debt, and that’s where buy now pay later comes in. The BNPL startups are capitalizing on the appeal of paying for stuff later, just like you’d with a credit card and aiming to make it convenient.
I stated earlier about snazzy new valuable stuff such as mobile phones, tablets, and televisions, but BNPL is now becoming accessible for daily necessities as well. Groceries, apparel, and even diner food Zomato and Swiggy are now providing BNPL as an alternative, and these types of BNPL use scenarios are probably a major root of rivalry right now for existing companies in the lending space, with the expected count of BNPL users in India reaching million by 2026.
By 2026, this will account for nearly 7% of Indians. Cardholders now contribute to just over 2% of India’s populace or 30 million, and it’s more than twice the average of BNPL users, which is between 10 and 15 million, and that number is burgeoning.
So, if you’ve not guessed, BNPL and credit cards are related in terms of the services they provide. Credit cards and buy now, pay later cards (BNPL) is a type of credit. This is a debt, not a credit card. You’re deriving funds from a 3rd person in both instances. It could be a BNPL firm, one of the financiers with which they have affiliated, or a credit card issuer, which is typically a bank. However, the issuance of credit cards and BNPL differs significantly.
So, if you’ve ever applied for a credit card in India, or if you already have one, you’ve most likely received a call or an email from a bank salesman congratulating you on your new card eligibility. Moreover, what’s happening here is that your contact details, that is linked to your identity, are now in circulation among most monetary organizations in India, as well as a few swindlers, but there’s a good chance that if you seek to get one of these cards, your request will be denied.
Irrespective of what the sales representative told you, acquiring a credit card in India is seldom as simple as the sales representative makes it seem. You must be beyond a certain age, you must meet an income cap, which implies you must have a career with a decent payslip, and you must most likely have a high credit rating, which makes it incredibly tricky for novel applicants into India’s lending market, folks residing in remote areas who may not even have a proven credit file, and same goes for freshmen who have just begun.
They’re steering clear of defaulters. Folks they believe pose an undue risk. Essentially, they maintain their NPAs minimal by upping the ante for their clients. But once you’re a client and obtain a credit card, the hardships and obstacles do not end there so you have to pay for your credit card.
Some credit cards charge a yearly fee only to own the card, close to a membership, but those that don’t typically cost exorbitant interest and a slew of other fees for stuff like exceeding your credit line, reimbursing your minimum deposit late, and cash withdrawals from your credit card to your bank. When you add up all of these obstacles to entry and client pain points, it’s no shock that many Indians dislike credit cards.
Brands such as Slice, Zest money, Simpl, Lazypay, and Uni are limiting the barriers that credit card companies have raised. In India, almost anyone can BNPL; all you have to do is offer information such as your PAN and Aadhar number. Rather than focusing on credit scores, these BNPL companies are using their algorithms to identify how much loan you must be awarded based on your previous transactions and site, once you’ve been a BNPL client for a while and are in good condition and have billed your loans, they’ll also boost your spending limit.
Another element to take into account is the timeframe. Card issuers anticipate that you will decide when to pay off your loans. They offer you a monthly minimum payment that you should return to them, principal and interest, but again, it is up to you to pay back the loan, and many struggles with that freedom. They reimburse the bare minimum without creating much of a hole in the principal, which is the original loan value before interest costs.
With BNPL, credit payout is spread out over a set period, typically a month or two, using a process named as EMIs. If you pay these monthly installments, your BNPL loans will be paid off after a set period. Is this to say that the BNPL plans are interest-free? Both yes and no. It depends on the console and BNPL firm from whom you are accruing.
The longer the loan term, the larger the interest rate. If you choose a short-term BNPL tenure, such as 15 – 45 days, you will most likely avoid paying any interest if you pay back on time. You’ve essentially just spread out a fee that would’ve been made immediately over a period of several weeks. However, if you choose a longer time frame of 3 months to a year, your interest rate could range between 10 and thirty percent, based on a range of factors. However, this is made upfront so that BNPL clients are cognizant of deferring fees for a longer time.
Card issuers, on the other hand, allow you to dig yourself a big trench. One credit transaction here, another there, and you’re unexpectedly trying to cope with minimum payouts, while your loans continue to increase as interest compounds. So, BNPL appears to be the clear victor here, correct? Isn’t it a type of loaning relevant and personalized?
That’s the story that BNPL fintechs want you to believe. But let’s look closely at how these companies work.
Let’s begin with the final consumer, who is acquiring a product now and paying later from a vendor who is an offline vendor, such as a shop owner, or a virtual vendor, such as a D2C firm or an eCommerce storefront. Then there’s the BNPL supplier, who is responsible for supplying the tech here. They examine the final consumer using sophisticated algorithms and decide how much to lend them, but this credit isn’t flowing from their wallets, at least not most of the time. Rather, these BNPL businesses have teamed with lenders, either nonbanking financial firms or full-fledged banks.
So, here we have a true overview of the consumer, vendor, BNPL mediator, and bank or NBFC. Often the BNPL vendor is an NBFC, and that’s just one of their many product lines, and they’re often a Fintech firm, such as Paytm, which offers BNPL, and often the BNPL company is also a vendor, such as Flipkart or Amazon, which have their specialized BNPL solutions.
So the concern is, how do BNPL firms earn money? There are a couple of income streams.
The first one arises from vendors such as card issuers and point-of-sale (POS) providers. BNPL firms charge margins ranging from 2 to 8% of the original cost. The vendor is fine with it as they see the chance to network with the BNPL supplier. For starters, they experience a rise in conversions and an average deal worth because clients who previously could not afford high-ticket items in their shop or marketplace can now do so. So, partnering with the BNPL firm facilitates vendors with more clients who spend thousands, and the best feature is that they don’t bear any of the risks.
The BNPL firm earns on behalf of a client. As a result, the monthly EMIs buyer pays do not benefit the vendor. The vendor has been fully paid; rather, the final consumer pays the EMIs to the BNPL firm, which accepts all of the peril.
And what if the end-users are unable to meet their monthly EMIs? Since many BNPL firms charge late fees, this is where the 2nd income stream comes in. As per bank bazaar, these fees vary from 2 to 8 % of the foremost loan balance, or they can be a fixed fee ranging from 0 to 750 INR.
To try to get these debtors to pay up, it’s almost like a punishment. It’s worth mentioning that some BNPL companies don’t cost extra payments and instead prefer to start slowly to avoid defaulters. They initially give an amount owed that they can easily lose, and if the client repays them, their line of credit is gradually increased. If a payout is late, the user’s ability to repeat procuring items through that BNPL site is revoked, and the user’s credit rating suffers as well.
Challenges Faced by BNPL Clients and Customers
The industry is facing a lot of issues. Many BNPL clients still have no idea what a credit rating is. They are unaware that avoiding paying off their BNPL dues on time will permanently harm their fiscal identity. They have no prior loaning experience. They haven’t been a client of a lender, and that’s where we soon run into troubles because, as I previously stated, BNPL companies make it extremely simple to obtain a loan. Even for those with no previous fiscal expertise and little financial self-control.
Sadly, some folks can spiral out of control. Without realizing it, they are overspending than they can manage to cover later. Of course, BNPL parties are aware of this, and they argue that it’s early in the season. Because debt users in India are low, they don’t have huge data to deal with, so they’re developing concepts.
They are steadily accruing a ton of information on first-time Indian debtors, and as they derive insights, they are reworking their equations, working with first-time debtors by starting with small loan confines and then providing larger loans to reliable debtors and identifying unreliable ones.
To put it another way, they’re laying the foundations for enlightening the fiscal reliability of a sizable undiscovered segment of India’s populace. It’s like a public good, or so they’d describe it.
Customers, particularly those who are not tech or monetarily savvy, are uninterested in these concepts. This bird’s-eye view means nothing to them. When they seek themselves suddenly in a sea of loans, they fear, curious how a relatively harmless buy now pay later forum got them there and how no one will offer them a loan to pay off their other line of credit since their credit rating, which users didn’t realize they had, has now turned red. They may lose hope of coming out of the financial mess.
This, of course, will not cause BNPL entities to slow down. At least not without the government’s help. Indeed, as more capital is poured into buy-now-pay-later businesses, the situation is only heating up. To stay viable, BNPL firms must connect with more prospective customers, either by entering untapped communities in remote areas or by poaching clients from rivals by giving them even simpler loans.
You can now adhere to BNPL from 4 or 5 multiple devices and collect up to one lacs with surprisingly fewer formalities and no payslips. There are even reports of BNPL firms failing to perform precise KYC or credit bureau checks. They’re expanding so quickly that they can’t extend their due diligence, and there have been reports of failures not being disclosed to credit bureaus.
To be honest, matters in India’s BNPL space are currently out of regulation. Unapproved credit institutions are springing up in the lack of sufficient regulations. For instance, in early 2021, an influx of Chinese lenders apps harassed and humiliated clients into repaying loans at exorbitant daily escalating interest rates by using user information and phone authorization.
The RBI discovered that of 1100 lenders apps in India, 600 were illegal, while these 600 unauthorized apps aren’t all BNPL apps, they are a manifestation of a bigger issue in the loaning space in India right now. Financiers and loan mediators are throwing caution to the wind in favour of expansion at any cost.
RBI Working Group Report on Digital Lending
The RBI’s online lending working group is developing innovative forms for safer business exchanges. Although the online lending market grew 12x between 2017 and 2020, the RBI did not govern several of the new businesses, according to the latest study.
Typically, these companies and apps collaborate with banks and NBFCs to assist. As a result, prompt loans are becoming available at the expense of higher risk. It has also led to client excessive debt, legislative arbitrage, and high costs.
The report reveals such flaws while also offering a great structure for the industry. The study’s pertinent points are explained below to provide a clear grasp of the proposition.
Differentiation among LSPs and BSLs
Loan Service Providers (LSPs) and Balance Sheet Lenders (BSLs) are separate entities (BSLs). LSPs are apps that offer clients borrowing choices. They don’t get to be explicitly controlled, so they must collaborate only with governed financiers that can offer the assistance.
BSLs, on either hand, lend money and stably claim credit threats. They always are governed. This difference enables LSPs to handle the front-end expertise, whereas BSLs handle compliances and threats.
Ban On FLDG
An FLDG tool, or Ban On FLDG First Loss Default Guarantee, enables ungoverned companies to give credit to borrowers and claim credit risk. The study advised against using a trojan horse entry.
Many fresh lenders face difficulties because their systems are based on shadow lending. This part entails neo-banking and Defi (decentralized finance) concepts for a modal test. Innately, the study guides that only governed agencies should be allowed to take credit risk.
Supervisory arbitrage must be eliminated
The study recommends classifying all credit lines as credit instruments and eliminating supervisory arbitrage. Eg: most BNPL providers treat this feature as a purchase rather than a loan, and thus lack adequate KYC computation. They are unrelated to the credit bureau.
Client Protection
In some cases, the fees and rates are as large as 100%. The working group suggests a few steps to safeguard consumers from such practices. These are some of the suggestions:
Use a proper APR for all interest and fees.
STCC – must conform to relevant standards to avoid exorbitant fee rates.
Limit high-risk, very short-term debts with no tranches.
Recapitalization and over-indebtedness should be limited.
Insurers must also make sure that the LSPs associated treat debtors fairly, particularly in collection practices. To verify trusting clients and a healthy ecosphere, all forcible actions are avoided.
Data Security
The info is owned by the customer, not the institution. All critical loaning situations require clients’ assent to use their data. This includes any e-commerce system that supports customer info to make underwriting choices. This improves data safeguards while retaining customer trust.
SRO And DIGITA
The study recommends that the RBI establish a Self-Regulatory Organization (SRO) to regulate operations and set guidelines. It also suggests developing DIGITA (Digital Trust of India Agency). DIGITA will meet the basic specifications for verification of conformance. Companies that have not been accepted by DIGITA will be considered non-compliant.
What Should Customers Be Wary of When Using BNPL Apps?
To begin, consumers must ensure that the app they are installing is from a licensed lender. If a firm does not have an RBI license, it must simply define under whose license it is selling products. Before installing, look into who is releasing the app, visit the site, and ensure it is a well-established and certified Indian corporation.
Second, if the firm is licensed, see if it explicitly shows this on its webpage, along with the RBI regulations that it adheres to, such as the grievance handling framework and interest rates. Furthermore, never install apps that request contact info because they are used for duress.
Third, while most BNPLs assert no charges or nil interest, you must learn the real loan amount. Even if firms claim zero percent, they are required to disclose their IRR – Internal Rate of Return – so buyers must ensure that the firm or app discloses all these for their safety.
Conclusion
BNPL is a valuable tool, but it should not be used for every acquisition a buyer intends to make or for daily purchases, as this would be over-leveraging oneself.
However, when handled efficiently and sensibly, the fact that rather than trying to make all of the payouts now or using a credit card to purchase, you are simply getting an option to acquire an item for nearly the same cost and drill down into 4-5 payouts is an effective device to have.
This is the benefit that BNPL firms provide, and it is the reason for the rapid acceptance because clients realize and require it. Buy Now Pay Later is an ideal, smooth payment system with vigilance on the part of the users and accountability on the part of the financiers.
FAQs
What are the risks of BNPL?
BNPL companies do not charge interest but charge high late fees which many consumers fail to pay and are later mounted in huge debt.
Is BNPL regulated?
No, Buy Now Pay Later companies are not regulated in India which has resulted in their growth and scams.
What is a BNPL company?
Buy Now Pay Later companies are companies that allow consumers to purchase the product and pay later in small installments.
Customers tend to purchase their products with various options when they buy through an e-commerce website. This could be through the various debit cards the customer has in their possession, through net-banking accounts, or through cash-on-delivery where they would pay for their products in form of cash once they receive the product you can pay for it next month when you have the money to do so.
There is a new trend that is emerging by the name of Buy Now Pay Later(BNPL). Say you find a good mobile phone worth say 10,000 rupees, but you don’t want to pay for it as it goes out of your budget for the time being (due to a cash crunch or whatever reasons it may exist). But say by opting for the BNPL alternative, the third-party BNPL company would pay the e-commerce site the 10,000 rupees and then you can pay the BNPL company the same 10,000 later.
There are various BNPL companies in India like Lazypay, ZestMoney, Simpl, MobiKwik, etc. Some companies, like Amazon in Amazon Pay Later and Ola in Ola Money Postpaid, have an intrinsic BNPL system built within them.
But then doesn’t it make you think, how do these BNPL companies make money in the first place, given the various instabilities associated with it potentially? How is it different from the conventional credit card? What is the market scenario of companies which offer the BNPL service in India? We will discuss all of these in this article.
BNPL companies make money mainly from two avenues:
Revenue from Sellers
For vendors, BNPL is an alternative payment method (others including credit & debit cards/wallets/Cash-On-Delivery) and thus, they have to incur a transaction fee like any other medium at a particular rate. However, a rate of 2-8% is higher than a normal credit-card discount rate, which is usually around 2.9% for e-commerce transactions and about 1 percent less for transactions made by credit cards in-store.
Thus, BNPL companies have to position their service offering in such a way that it convinces future customers of how enticing their service is, and this would further convince more vendors to buy into the BNPL service they are offering thus increasing the customer traffic.
Revenue from Customers
Most third-party BNPL providers do have their soft-credit checks to avoid giving money to people who have a poor record for repaying obligations, but this is not universal. Here is how BNPL provides monetizing from consumers:
1)Interest- This varies depending on the company. Some providers like Lazypay charge an interest of 10-30% on the “loan” amount, depending on the customer’s credit and duration of repayment. There are other organizations like Split in America which do not charge any interest rate as long as the installments are paid in due time.
2) Late fees- This forms a major chunk of the revenues of the BNPL organization (as high as 30%). Late fees occur when a charge is imposed on a customer for not paying the due amount on time and he thus has to pay later. Think of it like borrowing a book from a library, and then the various fines accumulated for not returning the book.
Difference between BNPL companies and Banks offering Credit cards
In India, there are mainly three differences between BNPL companies and banks that offer credit cards.
1)Eligibility Criterion- Banks have more stringent criteria to give out credit cards (such as their CIBIL credit score, whether they are earning above a certain criterion or not). BNPL companies are relatively less stringent in their criteria. This helps many consumer segments, such as self-employed people and lower-income category sections.
2) Accessibility- Unlike credit cards, where you have to fill various online forms going through multiple levels of authentication, we can get access to the BNPL option through a one-stop authentication using our UPI ID. Another fact to be noticed is there is no waiting time to avail of the BNPL option unlike say credit cards, where we have to wait 2-3 weeks after applying for one.
3)Interest Rates- BNPL companies tend to offer an interest rate of around 28-30% and as mentioned earlier, interest rates are only applied when the customer opts for a longer duration of repayment. Whereas for credit cards, this tends to be way higher than 36-42% annually. Cases of high-risk borrowers do exist in which BNPL companies offer their services at interest rates similar to credit cards.
Currently, as it stands, unlike other developed nations, BNPL in India is still in its infancy. But it has been widely speculated that it could take off in the future.
A market research firm by the name of Redseer estimates that India’s BNPL market will stand at 45-50 billion dollars by 2026 from the measly 3-3.5 billion dollars as it stands right now. The research firm also predicts that the number of BNPL users in the country could rise to 80-100 million customers by that time, from the 10-15 million users it currently has.
As per Upasana Taku, co-founder of MobiKwik, “Only 60-70 million Indians have access to credit today, which means 93% of India has no access to credit”. Thus, there are a lot of opportunities to be exploited by BNPL companies in the Indian market, where millions of people have little access to formal credit. The poor access to formal credit has further been exacerbated by the COVID-19 pandemic.
These things can be noticed in the fact that about one-fifth of the revenue of MobiKwik is due to the BNPL transactions and there has been a 45x growth in BNPL transactions for MobiKwik. Similar trends can also be noticed in other BNPL companies.
Currently, the major obstacle is, unlike those behemoth banks that offer credit cards, BNPL companies can only offer a maximum credit of 100,000 rupees (which roughly equates to 1310.17 dollars). But this can be overcome as long as the reach of BNPL companies spreads all-over India, especially in the tier-2 cities and villages of India.
Conclusion
Thus, this article documents how BNPL companies get to make their revenue in India, how they are different from banks that offer credit cards, and what is their scope in our country. In a country where a lot of people are transitioning from the lower-income group to the middle-class group, this appeals a lot to the Gen-Z and millennials of our country. The more people get access to credit, the more they spend on various goods which leads to the growth of the economy.
FAQs
Which are the BNPL apps in India?
Some of the best BNPL companies in India are:
Lazypay
ZestMoney
Simpl
MobiKwik
ePayLater
Flexmoney
Paytm Postpaid
Sezzle
What is the BNPL market in India?
According to the Q4 2021 BNPL Survey, BNPL payment in India is expected to grow by 89.5% on annually. It will reach US$ 6927 million in 2022.
Which are the E-Commerce website that allows Buy Now Pay Later option?
Top e-commerce websites that provide the payment option of Buy Now Pay Later for complete range of products are:
What do you think of buying now and paying later? Sounds so fascinating! That’s right, nothing can be compared with the happiness of a shopaholic that comes with this idea of buying now and paying later. Well, this ain’t just an idea anymore!
Buy now, pay later (BNPL) has been a great success ever since its development. As the name implies, BNPL provides the customers with the offer of buying their favorite product now and paying the cost anytime later.
The major reason behind the success of the Buy now, pay later model is its ability to attract a large audience and enhance E-commerce sales. That’s why more and more companies across the world are adopting this remarkable online retail business model.
However, the Buy now, pay later model is kinda similar to credit card payments! There have been many questions raised on its similarities. But the offerings come in the BNPL model, and cannot be found in the credit card payments. In fact, it has raised its average order value by 33% in the retail industry.
In this article, you will be getting a brief description of how this amazing business model works and Why ecommerce companies opting for how it is increasing E-commerce sales. Let’s get started!
Similar to its name, the Buy Now, Pay Later Business Model is pretty simple. The customer purchases any product and instead of paying the whole cost of the product at once, they pay it in the form of installments over a certain period. So, when you don’t have the complete amount of money, you can still buy it and pay the money afterward.
Customers can choose the finance provided by the stores themselves or a third party like PayPal and Klarna Credit. It doesn’t matter which payment method you choose, the pay later service will work tremendously for you.
Through this method, the retailer gets enhanced sales and shifts the product from inventory pretty quickly.
The Buy Now, Pay Later business model is initiating a new line of offerings for the customers to buy any product in installment, just as they used to purchase through the layaway business concept.
The Target Audience of Buy Now, Pay Later
Among the immense number of consumers in the retail industry, Buy Now, Pay Later is used by almost everyone! According to statistics,
33% consumers are in the age group 18-25
40% consumers are in the age group 26-34
62% consumers are in the age group 35-50
16% consumers are in the age group 51-64
By looking at these figures mostly grown-ups and millennials are the regular users of the Buy Now, Pay Later business model. And now, many bigger e-commerce companies have also adapted this business model strategy, and customers’ sales are increasing tremendously.
How does the Buy Now, Pay Later (BPNL) business model work?
Usually, in credit card payments, the consumer contacts the corresponding bank or credit card company. But, In the Buy Now, Pay Later business model, the consumers are directly connected with the merchants.
This payment mechanism was initiated by companies such as Afterpay, Klarna, and Affirm around 5-15 years ago. These companies established an entirely different business model for merchants to increase their customers worldwide.
They used the consumer’s debit card as the payment means for the transaction. This has extensively grown ever since the pandemic happened! During the financial crisis, people could still purchase their essentials and pay the money in installments.
On a general basis Buy Now, Pay Later companies to charge 5-6% of commission from the merchants. The purchasing behavior when compared with the conventional credit card payment methods, demographics are entirely different.
The Buy Now, Pay Later companies earns from the consumers by charging interest on the “loan” amount. Many companies also earn from late fees. Late fees are penal fees charged to users in case of an inability to repay.
Why are E-commerce companies using Buy Now, Pay Later (BPNL) model?
When we look at previous statistics, the Buy now, pay later model is mostly adopted in the retail sector. But with time, this is evolving on a great scale. Many companies, from all service sectors across the world, are adopting this amazing opportunity to attract more customers.
When a company offers installment payment on various products, customers’ purchasing also increases. With this buy now, pay later services, e-commerce companies will offer many more additional services in order to improve their customer’s experiences. This will result in the involvement of higher consumer costs.
As other industries adopted this tremendous business model, healthcare is the last on the list. Even Walnut has also adopted this service in its healthcare sector.
Walnut Website
Furthermore, Buy now, pay later also reduces the financial stress from the company, and customer engagement heightens.
As the E-commerce platforms are growing with an extensive speed. Adding buy now, pay later service into it would take the graph, exponentially.
We have noticed great growth of the buy now, pay later business model. No doubt, it has taken the retail industry to the next level of sales and customer engagement. The buy now, pay later model is more budget-conscious and careful with consumer protection.
This unique business model is likely to grow more vigorously in the upcoming years. With that in mind, we can state that the buy now, pay later model has brought various advantages for industries, especially the retail sector.
FAQ
What are some of the Buy Now, Pay Later companies?
Affirm, Afterpay and Klarna are some of the Buy Now, Pay Later companies.
What is Buy Now, Pay Later business model?
The customer purchases any product and instead of paying the whole cost of the product at once, they pay it in the form of installments over a certain period.
How do Buy Now, Pay Later companies make money?
The Buy Now, Pay Later companies make money by charging merchants a 2% to 3% merchant fee.
Ashwini
