OPINION: BNPL demand fueled by low credit card penetration in India

Since the outbreak of the pandemic, digital offerings have gained momentum in growth. Of these, a popular category has been BNPL (buy now, pay later) credit products. This is an interesting phenomenon because credit card use never quite caught on India as one would expect, especially in non-Tier 1 cities. According to GlobalData, the country has only five credit cards for every 100 people.



Nevertheless, the BNPL credit The option has found growing favor among various cohorts across India. RedSeer Consulting estimates that the segment will touch nearly $50 billion by 2026. Given its huge potential, several players from various fields have entered the space, including fintech/payment players, e-commerce entitiesa carpooling aggregator and banks.

BNPL benefits and changing consumer habits

Thanks to the instant digital credit offer, millennials and other younger cohorts are using BNPL when shopping online, including new digital payment users. In order to meet the growing demand, many e-commerce brands and smaller D2C (direct-to-consumer) brands, which would otherwise not be able to offer credit facilities to consumers due to the costs involved, are using also BNPL.

BNPL’s popularity can best be gauged from the reaction of banks who were initially wary of entering the sphere, but are now active participants.

BNPL provides maximum credit from a few thousand to one lakh only. Conversely, credit card limits can stretch up to five lakh or more, depending on the service provider and an individual’s creditworthiness.

Yet, given the generally higher interest rates on credit cards, many consumers avoid using their card regularly for small bill purchases. It is these cohorts in metropolitan and non-metropolitan areas that BNPL actors serve. The best part is that borrowers can avail short term credit through BNPL even if they have no credit history which is next to impossible with credit cards where tough inquiries are made through credit bureaus before a card is approved, with possible impact on credit scores. As a result, the buying habits of consumers who were previously credit-averse are changing.

BNPL’s demand is fueled by the low penetration of credit cards in the country and the increase in e-commerce transactions in recent years, especially after the COVID-19 outbreak. Market analysts believe there is huge potential for credit products such as BNPL as the 15-45 day credit period allows people to better manage their monthly purchases and monthly budgets.

According to the proposed BNPL, the duration of the credit can extend up to a few months. During this time, the credit amount can be repaid in installments. However, there are late penalties and interest charges if payment is not made within the predetermined time. As a result, service providers earn revenue through commissions paid by merchants as well as late fees, although the latter are not a core source of revenue as such.

Favorable winds and other advantages

With people confined to their homes for extended periods since March 2020 due to intermittent lockdown restrictions, the simple, convenient and instant credit option has become a boon, especially for new borrowers shopping online. Recognizing the demand, e-commerce portals and apps are offering the BNPL option to shoppers.

It used to be that when people needed nearly interest-free credit for shopping or other recurring expenses, they were inclined to borrow from family, friends or relatives. But the pandemic has closed that route, as liquidity constraints have affected nearly every family. In such a scenario, BNPL gained faster acceptance among buyers during this period. While the credit offer first found favor with young working people and millennials, people of all age groups have also gradually started to use the BNPL’s devices during the confinement phase.

To take advantage of changing consumer habits, some BNPL players have joined forces
Kirana stores to offer their customers a convenient credit option. This is possible since BNPL offers can be approved online in minutes using smart technology, which reduces paperwork to a minimum, unlike other credit products which consist of tedious documentation and processes. developed credit approval. Additionally, BNPL’s real-time credit option has less risk of rejection than personal loans or cards.

It should be noted that BNPL offers ‘interest-free’ and ‘interest-bearing’ options. In offers with an interest element, in some cases, customers can avail higher credit ranging from INR 25,000 to INR 100,000 which is useful for high value purchases. Here, interest-based EMIs (equated monthly installments) could typically be spread over one to three months and in some cases even longer.

In India, BNPL is used for both day-to-day purchases such as personal care products, health products and groceries as well as high-value goods including electronics, appliances, telephones laptops, durable consumer goods and more. In addition to facilitating small ticket purchases at no additional cost, the service offers a fast and secure checkout process, making it more convenient for online merchants and shoppers.

Finally, given the transparency regarding interest rates, late payment fees, etc., consumers are assured that there are no hidden fees at BNPL. Considering these advantages, there is no doubt that BNPL will gain strength year by year.

The author is the founder and CEO of payment platform Simpl.


Disclaimer: The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India.

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