22-year old Jayesh had his eyes on a leather jacket, similar to the one worn by a famous Bollywood celebrity in a recent film. He took the Rs. 20,000 leap and bought the jacket from a brand he normally couldn’t afford at that age, all thanks to the Buy Now Pay Later facility he could avail.
The Buy Now Pay Later facility, also known as BNPL, has become quite popular these days as consumers find it quite convenient and affordable. It also tends to reduce the financial burden on the borrowers by making them eligible for no-cost EMIs.
According to IBEF, the Indian e-commerce market is expected to reach the mark of US$111.40 by 2025, driven by consumer demand.
Amidst job losses and salary cuts that happened during the pandemic, BNPL tends to enhance the affordability of products for the masses. While the adoption of BNPL as a payment mode is expected to rise at a CAGR of 28.9% from 2021-28, there is a lack of awareness prevailing about it amongst consumers and businesses.
Let’s shed some light on ‘Buy Now Pay Later’ as a payment method from various angles.
What is BNPL payment?
BNPL is a short-term financing option that allows consumers to buy products and then pay for them during a stipulated period. They can either pay for the purchases in a lump sum amount or through no-cost EMIs.
In case they fail to pay the amount within the defined repayment tenure, the Buy Now Pay Later facility provider will charge interest on the amount. Besides this, payment delays can also impact their credit score.
How does Buy Now Pay Later work?
Most BNPL payment option providers follow the same operational models differentiated by their distinct terms and conditions. The core tenet of this payment option is that it enables the borrowers to afford what is to be bought today but pay for it over time.
In general, the credit period varies from a month to 36 months, depending on the transaction amount. On the other end, the lender or the service provider who enables the BNPL option decides a personalised credit limit for each consumer.
Here’s how Buy Now Pay Later usually works:
- The end consumer (borrower) buys a product through a participating retailer
- During checkout, he/she opts for BNPL as a payment method and agrees to the lender’s terms
- The order is then placed, while the consumer chooses to pay the whole amount at a specified date later (usually around 30 days)
- He/she can also choose to convert the total amount payable in interest-free EMIs
Why Buy Now Pay Later is growing in popularity?
Several reasons make the BNPL facility stand out in these challenging times.
- It allows businesses to deliver a seamless shopping experience to their end-consumers
- It facilitates a one-click checkout process
- BNPL is usually a no-cost or low-cost financing option for consumers (depending on the lender’s terms) with a flexible repayment process
- It follows a completely digital onboarding process
- It helps consumers avail short term credit for instant purchases and pay for them at a later date
What are the Advantages of Buy Now Pay Later for Consumers?
- Increased affordability
- Quick access to credit without hefty paperwork and documentation
- Ease of repaying the amount at a later date
- Conversion of bigger purchases into no-cost or low-cost EMIs
- No hidden charges
Need for Buy Now Pay Later in India
Multiple driving forces are there behind the growing demand for BNPL facility beyond pre-Covid levels. It is an attractive option for young or new-to-credit consumers in India who do not have credit cards.
More particularly, millennials and Gen Z who have entered a life stage that calls for frequent big-ticket purchases, are willing to use Buy Now Pay Later instant credit option.
As per research, only 3 credit cards are there for every hundred individuals in India, which clearly shows a demand-supply gap. BNPL can be considered a unique proposition for consumers who do not have any credit history but are looking for short-term credit.
Buy Now Pay Later – Eligibility Criteria for Consumers
In general, an individual who fulfils the following criteria is eligible to access BNPL facility:
- He/she should be a resident of India.
- He/she must be above 18 years of age (the upper age limit may vary as per the associated lenders).
- He/she must have a regular source of income (salary or from business – income proofs may be required).
- He/she must have a valid bank account with all the KYC documents in place.
Note: The lenders who offer this facility to the participating retailers – online and offline, may include other clauses to the general eligibility criteria.
What are the differences between Buy Now Pay Later and credit cards?
Given below is a detailed comparison table that differentiates the BNPL payment option from credit cards:
|Credit Cards||Buy Now Pay Later|
|Requires good credit history||Not mandatory to have a credit history|
|Have a standard interest-free period||More flexible interest-free period that can be extended up to 48 months|
|Not easy to get approvals by the credit cards providers||Quick and easier approval for credit limit for all|
|Comes with the option to pay only the ‘minimum due amount’ in a month||Fixed EMIs to be payable as per the repayment schedule|
|Has a strict onboarding process for the applicants||100% online onboarding possible with no paperwork involved|
|Hidden charges may be levied||Transparent and low-cost/no-cost pricing model|
|Higher interest rate up to 48%||Comparatively lower interest rate if any|
The present and future of BNPL
The current acceptance of BNPL as a payment option shows it is here to stay. It will most likely attract more borrowers to make instant purchases and then pay for them later.
However, at its core, Buy Now Pay Later is just a type of financing option available to consumers. The amount borrowed via BNPL has to be repaid timely. On one hand, the consumers must understand that failing to repay the borrowed amount may result in higher interest charges and a drop in their credit score.
On the other hand, businesses need to be careful about managing the repayments and dealing with the defaulters.
How can you include BNPL payment option for your online business?
Running an online business simply means strict competition with renowned brands in almost every category. By allowing your customers to pay via BNPL payment method, you can move a step forward towards the next-level growth of your business.
The best part – you need not worry about setting up the financing program, checking the credit-worthiness of the customers, checking funds, or facing risks related to the repayment defaults.
Simply switch to Paytm Payment Gateway that provides Paytm Postpaid as an exclusive payment source to all your customers. With Paytm Postpaid enabled in the Paytm app, they can pay for the purchases using this unique BNPL payment option.
Recommended Read: Paytm Postpaid Defined – Benefits, Features, and More
What are the Advantages of BNPL for Your Business?
- It will attract millennials and Gen Z shoppers to your online store
- The global BNPL industry is at its inflection point and is expected to grow 10-15 times its current volume. Having this payment option can lead to higher sales for your business
- It can also boost average order value with higher sales of high ticket items available in your store
- BNPL payment option (Paytm Postpaid) gets seamlessly integrated into your website or app to facilitate a quick purchase/borrowing experience for your customers
- It can also increase the possibility of repeat purchases while lowering UAC (user acquisition cost)
Buy Now Pay Later – FAQs
Is BNPL facility an instalment loan?
It can be considered a type of instalment loan as the consumers can pay the amount spent via Buy Now Pay Later in EMIs. An interest is charged at a certain rate in case they fail to repay the amount timely.
Is it mandatory to pay interest with the Buy Now Pay Later payment option?
The interest charged to the customers (not merchants) depends on several factors, such as the amount spent, credit score, and repayment period. In case the customers pay the amount spent within the given period, no interest is generally charged.
When can an individual use the BNPL option?
It mainly depends on the associated payment provider offering BNPL facility. In general, one can use it as a payment method while transacting online and offline. The only thing that matters is that the merchants should have enabled BNPL facility.
Does BNPL affect credit score?
As long as the borrower repays the amount spent on time, his/her credit score will not be affected. In fact, opting for the BNPL payment option can help improve the customers’ credit score with timely repayments.
What happens if a customer does not pay the BNPL amount?
Failing to pay the BNPL amount makes the customers liable to pay a significant interest. This debt will continue to grow until the amount is repaid with interest. Besides this, delays in repaying the BNPL amount can also affect their credit score, which may cause obstructions in availing loans in the future.
- Buy Now Pay Later industry is growing at a fast pace, which is beneficial for both customers and business owners
- The younger generation is making the most of the BNPL trend to save money and fulfill their needs/desires instead of using a credit card
- Businesses can start offering BNPL payment option by simply switching to Paytm Payment Gateway