Our entire lifestyle has been upended in the harrowing time of the pandemic. Besides swapping our priorities, Covid-19 has also brought a change in our financial perspective, and the way we treat money.

From earning and saving, to investing and spending, our relationship with money has been transformed. It has a lot to do with the restrictions, government-sanctioned as well as self-imposed, which barred us from enjoying our social life. Apart from the narrowing down of avenues to spend, another factor was downsizing of incomes for many individuals and households. But the pandemic has also opened a window of opportunities for technology to bridge the void that had been created. Fintech companies led the charge bringing new financial products, and major banks followed.

And in this entire journey, Buy Now, Pay Later (BNPL) also made a major surge across the world as people shifted both their purchasing and expense habits in response to the pandemic. According to a survey by financial technology leader FIS, pandemic forced consumers to shift from cash and cheques towards digital payments. The survey also found that Buy Now, Pay Later apps gained significant popularity, especially among younger generations with around 32 per cent of consumers owning a BNPL app. Most often, consumers use Amazon or Flipkart’s BNPL options, the survey revealed.

What is BNPL?

Just as the name suggests, BNPL allows consumers to buy products of their requirement now, and later pay for them in lump sum, or in instalments that are often interest-free. Think of it as the traditional ‘khata’ system often followed in small towns and villages where people make multiple purchases throughout the month with transactions getting recorded in the ‘khata book’. The customer would then pay the entire bill at one go at the end of the month. BNPL is the digital and technologically modern equivalent of the same.

According to Akshay Mehrotra, Co-Founder and CEO, EarlySalary, BNPL is an alternative to credit cards that works similarly. Usually, BNPL credit lines are offered at zero cost to consumers with subvention from retailers.

Shams Tabrej, financial expert, and Founder and CEO of Ezeepay, however, says that BNPL stands with a huge difference as compared to personal loans or credit cards. “BNPL is an interest free credit if its repayment is being done on time, while credit card and personal loans come with huge interest rates. Also, making a BNPL account is a hassle-free process unlike credit card and personal loan application,” he adds.

One major difference that makes BNPL stand apart from other loans, and even plastic money, is its accessibility. You do not need to go through the tedious approval process of the bank. While many fintech companies specialise in BNPL offering the facility through a completely digital process, one can also access this facility directly from certain merchants like Amazon.

Mehrotra says that BNPL is a secure payment method through which consumers can purchase the product without swiping their card and PIN, entering their net banking details, or transferring money from an e-wallet. “It offers instant credit at the point of sale itself for making a smooth and frictionless purchase. Many merchants allow later functionality to be offered by fintech in addition to other payment modes. BNPL’s payment mode is secure and integrated directly with merchants or various payment gateways,” he explains.

Tabrej adds that one can avail BNPL services even if one does not have a bank account. “There should be timely repayment of the amount which has been used up to avoid late fees. BNPL is just like any other loan, it will still fall upon the customers to make prompt repayments to maintain a healthy credit score since it provides data to credit bureaus,” he says.

Recent Surge in BNPL

The financial disruption following the Covid-19 pandemic has expedited the number of companies and consumers trying out alternative payment options, says Nitya Sharma, Co-Founder, and CEO of Simpl. The whole world is facing more challenging financial situations, with increasing unemployment rates and growing anxieties about the economy. These have been cutting customers’ purchasing power as well as companies’ incomes. Hence, each of them is working toward making necessary transactions reasonable or more seamless. “And most of them have determined that the BNPL option is a viable solution.”

Sharma adds that many vendors and shopkeepers providing this option have stated an uptick in customer adoption figures and a larger percentage of repeat customers as enthusiasm around BNPL picks up. “The pandemic may have created more interest in options such as BNPL. However, the practice was on the rise in various markets, such as the US and Australia, even before the pandemic. Recent survey shows 34 per cent have added to their credit card debt since the onset of the pandemic. These customers, many of whom are now dealing with student loan bills and additional sources of high-interest debt, have a notable distrust for credit. Due to this reason, many people in this generation were fascinated by BNPL solutions well before the Covid-19 pandemic started affecting personal finances,” she explained.

Rajesh Desai, CEO, and MD, Lyra Network India, believes BNPL’s convenience ensures that customers can make ends meet. “With the sudden surge in the searching for liquidity, continued restrictions on household incomes, and lack of credit providers in the challenging economic environment, customers are enamoured with this new digital solution.”

BNPL is different from credit card loans as it offers credit that periodically tops up. “Instead of adding further charges on credit cards and complex lending agreements, one can consider BNPL as it offers a short-term structured payment method with no interest charges,” Desai advises.

Due to low credit card penetration in India, supplemented by traditionally strict eligibility criteria to avail formal finance, there exists a sizable under-served population with little or no credit histories. Access to more data and better insights are driving significant change in how consumers get approved and offered a credit line, specifies Mehrotra. Machine learning and artificial intelligence are enabling companies to analyse massive sets of alternative data to build powerful credit decisioning systems.

What Future Holds

While the BNPL services are currently focused on retail and e-commerce, they will soon expand to other industries and sectors. It can offer a more advanced omni-channel platform with offerings like customer insights, analysis reports, spending habits, explains Desai. Combining artificial intelligence and machine learning, it can even give a more personalised experience from budgeting tips to discovering new products. “With the ease of the regulatory system, BNPL can and will further disrupt the traditional banking landscape, becoming a game-changer for developing countries and unbanked populations.”

The adoption of BNPL is expected to rise at 24.2 per cent CAGR from 2021 to 2028, taking the gross BNPL merchandise from $ 6,990.5 million in 2020 to $ 52,827.2 million by 2028, according to Tabjrej.

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What Makes BNPL Stand Out

• It is the easiest form of financing available
• Unlike a credit loan, BNPL offers a line of credit that gets resumed after periodic repayments
• People from the age group of 20 to 35, are the major customer base for these services
• No added expenses in case of timely payments
• Enables making online transactions without having a bank account

vishav@outlookindia.com