Buy Now, Pay Later?

The boom of BNPL platforms holds exciting opportunities for the future of fintech. Here’s what it is all about

“From bills to biryani, pay for all your purchases later.” – LazyPay

Typically, if faced with a sentence such as the one above, it would be safe to assume that one was set to be subject to either a Ponzi scheme, exorbitant credit card interest payments, really poor biryani, or all of the above.

Now, imagine a world where you can avail this feature without interest and with immediate credit disbursal for all your regular payments. And voila!

Welcome to the world of BNPL – Buy Now, Pay Later.

The State of BNPL

Today, Buy now, pay later (BNPL) solutions, allowing consumers to pay back small short-term loans in easy interest-free instalments, are seeing their biggest boom yet. According to research by Insider Intelligence, the sector is set to rack up as much as $680 billion in global transaction volume by 2025 itself. This astronomical growth trend has been exacerbated by none other than the coronavirus pandemic, with a greater number of people today seeking alternative methods of financing than ever before.

Also called point-of-sale instalment loans, consumers typically make an upfront payment toward the purchase and then pay the remainder off in a predetermined number of instalments. Said BNPL plans often charge no interest, and credit is approved much easier than traditional credit lines or credit cards. While it doesn’t usually directly affect an individual’s credit score, late payments or failing to pay may adversely affect one’s credit score as well.

The Indian BNPL setup

BNPL solutions in India are a part of the fintech sub-segment growing at an astounding 65% annualised growth rate and are set to reach a staggering $40 billion market size by 2025, according to research from management consulting firm RedSeer.

Consequently, the Indian BNPL market today is flooded with a plethora of options – in not only start-ups such as LazyPay and Simpl, but also some other major players such as Flipkart, Amazon, Paytm and PhonePe looking to offer BNPL products and capture the market early on.

The penetration of BNPL is not restricted to just the fintech environment either. In fact, ride-hailing service Ola too has recognised the possibilities around BNPL services, launching a service called Ola Postpaid, offering the pay-later option across hundreds of different platforms and online marketplaces.

It isn’t all smooth sailing, however.

“The majority of consumers who use BNPL frequently have good usage hygiene, and usually pay on time. However, there are some consumer experience areas to be solved to drive higher average revenue per user/customer lifetime value from the existing user base,” according to Mrigank Gutgutia from Redseer.

Increased credit limit, cash withdrawals, improved user convenience, and more merchant tie-ups are a few key areas that need improvement, reports Bangalore-based news outlet The News Minute. “Regulations will also be key as several nations have started to regulate BNPL to protect users and reduce defaults, while India is still in the nascent stage,” Gutgutia noted.

Making sales that wouldn’t have happened otherwise

Sound familiar?

This is almost exactly what Visa and MasterCard said when they entered the credit card business initially. Today, BNPL providers are saying the same thing.

According to Forbes, the next big step for BNPL is to become shopping destinations. Australian BNPL service Afterpay, for example, announced last year that they would enable merchant partners to advertise on their platform to boost promotions, products and offers. Brands are now set to have the flexibility to choose the products they wish to promote and pay only once customers have engaged with the ad on the BNPL platforms.

The future, however, will be based much on specialisation. “BNPL providers will need to be masters of the customer journey. Few (if any) will be able to do that in more than just a couple of product categories resulting in specialisation by product category. This is already happening with BNPL specialists like LoanStar Technologies in home improvement and Prima Health Credit in elective medical procedures”, according to Forbes.