Rise of the BNPL and its impact on the credit system

Buy Now, Pay Later (BNPL) is in vogue these days. From retailers to consumers, BNPL has been a win-win transaction facility in various aspects.

As the name suggests, Buy Now Pay Later platforms offer the ability to pay later while ensuring a quick purchase of goods. Customers can easily convert the payment amount into shorter term EMI. These EMIs are reimbursed over a few months depending on convenience. Normally, such an arrangement is completely of no interest to the client. Retailers or merchants themselves bear the burden of this interest in most cases to promote their business.

Vikas Bansal, Director of Amazon Pay (India), says: “The Buy Now Pay Later culture has grown tremendously over the years, especially creating a niche market in India, filling one of the biggest gaps, the need for an easy credit-based lending system, making it a frontrunner and a flexible option for customers in the midst of a fragmented, hard-to-access, and highly paperwork-intensive credit market.”

Increase in the use of BNPL

Over the past few years, there has been a big boom in BNPL transactions. A large number of people have started using this payment technology in the crisis of dwindling jobs and uncertain incomes after covid. The BNPL system is very popular with young people or people using the credit facility for the first time.

According to some research reports, young people use BNPL the most for purchases related to expensive smartphones, major appliances, vehicles, fashion, etc. Companies offering such facilities have seen a huge increase in BNPL applications.

Amazon Pay, LazyPay, AirPay, Paytm, Flipkart, Zest Money and many more are the organizations providing BNPL facilities to people these days.

Anup Agrawal, Chief Commercial Officer of LazyPay, says: “BNPL represents a growing payment trend as consumers, especially young Indians, are increasingly looking to defer their payments as they want to enjoy experiences and avoid engaging in long-term debts.the experience offered by BNPL, easy accessibility and the rise of digital payment is driving demand for BNPL as it emerges as a preferred payment method for many.With changing preferences of consumers, namely digital and convenient contactless products, Buy Now Pay Later will continue to see higher adoption in the years to come.”

Reason for trend

The main reason for the appeal of the BNPL payment system is convenience and cost reduction. Although it is an alternative to credit cards, it is of no interest to most people. Also, due to the lack of hidden charges, people are attracted to this side.

Kunal Jhunjhunwala, Founder and Managing Director of Airpay, said, “BNPL ushers in a shift in credit availability similar to UPI brought to wire transfers or bank payments. It facilitates impulse purchases for consumers and expands digital payments. for merchants. But as the old saying goes, with great power comes great responsibility. Easy access coupled with lack of awareness and higher impulse spending can easily put consumers on the path to a consumer trap. debt. Most consumers are not fully aware that such purchases are listed in their credit history and therefore the impact.”

Concessions are also available to the customer in terms of payment. BNPL also benefited from the complicated process of banks lending and reducing credit limit at the time of covid. The main reason for the rapid expansion of Buy Now Pay Later is also its availability for common customers.

Future with BNPL

The BNPL market is expected to reach in the future USD 20.4 billion by 2028 and over USD 1 trillion in annual gross merchandise volume (GMV) by 2025 globally. The Indian BNPL market already exists with a size of Rs 22,500 crore.

BNPL can eventually set a credit standard in a lending industry like India. Here are the experts’ opinions on it:

“I think going forward this will broaden the formal credit base. However, what is needed is good visibility and proper education for the consumer to appreciate the impact of this facility. Most of consumers still do not understand that BNPL is a line of credit. This education needs to be more academic and knowledge-focused rather than technology-focused. The facility has incredible reach to draw more people into the formal credit system. ~ Kunal Jhunjhunwala, Founder and Managing Director, Airpay.

“India is massively underpenetrated when it comes to credit. In a country of nearly 1.4 billion people, up to 191 million people over the age of 15 were unbanked in 2018, and that has not changed much over the past few years.There are limitations in terms of access to credit for India’s unbanked population and credit newbie population especially the youth.Additionally, the cumbersome process of applying for credit cards, right from submitting supporting documents, linking Aadhaar cards, filling application forms etc. adds to the woes of young Indians who demand a quick and hassle-free experience. increase in consumers for convenient and fast payment options like Buy Now Pay Later (BNPL).” ~ Anup Agarwal, Business Leader, LazyPay.

“BNPL continues to evolve and help redefine customer habits. In the years to come, BNPL will evolve significantly, creating new avenues beyond the e-commerce platform and Amazon Pay will continue to innovate on behalf of our customers.” ~ Vikas Bansal, Director, Amazon Pay.

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