According to Global Data’s e-commerce analytics (1), e-commerce payments in India grew by 12.2% in 2020 and is estimated to register a growth of 16.8% to reach ₹4.5 trillion ($61.5bn) in 2021 and further to ₹8.8 trillion ($120.1bn) in 2025. ‘Buy Now and Pay Later’ famously known as BNPL is the one that is making the most out of this growth. From a 3 % share in 2020 to a projected 9 % in 2024, as industry experts predict (2), BNPL will be the fastest growing online payment method.
|Ecommerce Payment Methods by Value in India (3)|
|Payment Method||Bank Transfer||Card||Digital Wallet||Cash||Others|
|Value in Percentage||20||29||25||17||9|
What is BNPL?
BNPLs are small-ticket loans that power online and offline purchases mostly via apps for making instant payments. This is an arrangement that allows consumers to make purchases without paying for them all at once (4).
BNPL players like ZestMoney, LazyPay, Simpl, Amazon Pay, Paytm Postpaid, etc. differentiate among themselves through their partnerships with E-tailers, reach-out, and terms of credit. Simpl had partnered with over 4,500 merchants across India and has more than 7 million users. ZestMoney offers interest-free instalment options with select merchants for up to six months. LazyPay offers loans up to ₹ 1,00,000.
While personal loans are large, costly, and not easy to qualify for, credit cards have a low approval rate. The cumbersome processes, lengthy paperwork, hidden charges, GST Charges, complexity in tracking payments, etc., discourage many from opting for credit cards. In such a scenario, BNPL positioned itself as a hassle-free, ready to use product, and was received well especially in lower-tier cities and rural areas (5). For those without regular incomes and those without great CIBIL scores, BNPL has emerged as the go-to option.
Key benefits of BNPL (6)
- Instant decision on the credit limit.
- Non-requirement of credit card details.
- No processing or cancellation fee.
- No pre-closure charges.
- No Annual maintenance fee, cash advance fee, surcharges, etc.
- Seamless checkout on the partner e-commerce platforms.
- Simplified tracking of expenses and repayments on the EMI specific dashboards.
BNPL’s as a low cost, easy to obtain finance, has lowered the ‘purchase hesitancy’ among the buyers.
Surveys (2) predict that BNPL would grow by 65.5 per cent in India, reaching a value of $11,570.7 million in 2021. BNPL is further expected to rise at a 24.2 per cent CAGR from 2021 to 2028, i.e., increasing the gross merchandise value in India from $6,990.5 million in 2020 to $52,827.2 million by 2028.
BNPL (7) can also attract late fees and penalties. BNPL is essentially still a loan and BNPL providers can report one’s repayment behaviour to the credit bureaus. Hence it will fall upon the customer to make repayments promptly to maintain a healthy credit score. The credit provided by BNPL is quite limited in size and scope compared to that of credit cards.
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Do you think BNPL can land customers in debt trap? Why?