“Buy now, pay later” can pay more than a rich lifestyle

The Kirana neighborhood store is the backbone of India’s $ 520 billion annually food market, accounting for 80% of sales. But the resources industry needs to grow and modernize have always been beyond its reach. Blame it on a delay in access to working capital, a constraint to growth which is finally starting to ease thanks to the merger of mobile internet and finance, in particular “buy now, pay later”, or BNPL .

Globally, the craze of young borrowers for small, interest-free loans that they can pay off in 30 days or a few monthly installments, often without high late payment fees like a credit card, is skyrocketing valuations of applications like Swedish Klarna and Afterpay from Australia. It also draws companies like Goldman Sachs Group Inc. and PayPal Holdings Inc. into the fray. As Gen Z shoppers try to beat their pandemic blues by buying lipstick in three installments, excessive consumption fueled by debt could lead to problems for the future.

In India, BNPL has found an additional – and perhaps more productive – application. Self-employed workers, whose clients pay mainly in cash, have traditionally had a hard time proving their creditworthiness to banks. Beginning with Unilever in 1888, virtually anyone who has tried to sell consumer goods in this large market has relied on distributors to overcome the problem. In addition to providing goods to small stores and collecting money from them, these intermediaries have historically provided informal cash support to the kirana. Since the distributors themselves raise money by mortgaging their warehouses and homes, they ration funding, favoring store owners they know.

Being excluded from this tight circle of trust has been an impossible hurdle for enterprising mom and pop outfits looking to thrive. They can’t exactly slip plastic to stock up, not when 85% of credit cards are held by salaried people.

Part of the gap is being bridged by new age payment companies, which are weaning small stores away from cash by encouraging them to use QR codes. Online transactions are growing rapidly. Customers shelled out 1.2 trillion rupees ($ 16.5 billion) to merchants for popular digital wallets like Walmart Inc.’s PhonePe, Alphabet Inc.’s Google Pay, and Local Paytm in August, a tripling from to the previous year. Once it captures this sales data, it’s easy for a startup like BharatPe to collect principal and interest on unsecured loans to retailers.

It is a welcome change, even if it is not enough. Kirana also needs access to interest-free cash – just like ATM credit – but obtained through a formal channel that is not circumscribed by personal trust. Enter BNPL, a product that is all the rage in consumer credit. This is how Mumbai-based ePayLater also started five years ago, offering people the option of buying train tickets on credit.

But ePayLater has turned to the retail sector, where rather than allowing excess consumption, 14-day loans provide the ballast to store more inventory. “Everyone is chasing the ultimate consumer,” says co-founder Aurko Bhattacharya. “But this was a line of business that deals so much in cash that it doesn’t have a paper trail of getting credit from formal sources. He is forced to stay informal. . “

Not for long. After a long period of relative stagnation, India’s retail business is on the move. Even small stores can now access large organized wholesalers such as Walmart, Metro AG in Germany and Reliance Market, or place bulk orders online with Jumbotail, a digital grocery marketplace for professional shoppers. Finance has been the missing link. “As a retailer, I can get better prices from large cash stores or business-to-business online sellers,” Bhattacharya explains, “but if I don’t have cash or a credit card, I have to go back to my local distributor and order only what he has and what he can give me on credit. ”

Intermediaries like ePayLater have therefore used the technology to wedge themselves in the middle of the chain, earning a commission from suppliers to pay them one day after delivery, and using this margin to borrow from banks and grant short-term credits to retailers. .

The fintech, which recently raised $ 10 million from investors including Zurich-based Responsibility Investments AG, has shelled out Rs 10 billion so far. Bhattacharya expects loans to increase by double digits every month for next year. Such is the thirst for funding, especially in small towns and villages. More importantly, every new dollop of credit where none existed before fuels the next generation’s upward mobility aspirations, he says.

For consumers, “buy now, pay later” is often the gateway to purchases they cannot afford, but so far, the kirana owners’ approach to product was business-oriented and sensible. The delinquency rate at ePayLater is 0.15%. Clearly, this credit innovation can be more sustainable when it finances livelihoods, not just lifestyles.

This story was posted from an agency feed with no text editing.

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