As young people become leerier of using credit cards, the online ‘buy now, pay later’ model has gained traction in the country.
The ‘buy now, pay later’ (BNPL) approach is gaining traction in India, where the number of credit cards is steadily declining. Young people who are cautious of using credit cards and paying interest and late penalties are increasingly being enticed online by e-commerce giants and a slew of start-ups that provide simpler payment options with no paperwork.
Is the BNPL concept, which is still relatively new, killing off
traditional payment methods like rapid pay and credit cards?
What is the difference between a BNPL and a credit card?
A more customer-friendly approach and openness are the primary differentiators for BNPL when compared to credit cards. In comparison to the excessive interest rates on missed credit card dues, the BNPL players levy a late fee on missing payments.
Several industrialised countries, like Australia and the European Union, have seen a similar expansion in the BNPL market. It enables customers to look for a short-term microlending facility for online purchases. The ‘indulge-now-and-pay-later’ facility works on the merchant charge, a critical income source, and late payment fees from customers, with little or no interest on the deferred payments.
Credit cards are in greater danger.
In India, the Covid-19 pandemic, which has left many people jobless, has produced good ground for the BNPL concept.
According to a recent Nomura analysis, the BNPL model poses a greater threat to credit cards since it offers more effective credit solutions (such as no-cost EMI) and makes it easier for e-commerce companies to leverage their enormous customer bases.
While some pureplay BNPL start-ups have already piqued the interest of millennials, banks such as ICICI Bank and HDFC Bank have launched their own solutions — ICICI PayLater and FlexiPay, respectively — to enter the relatively new area. Lazypay, Simpl, and Zestmoney are among the most successful BNPL start-ups.
BNPL services are available on e-commerce sites.
Ecommerce behemoths like Amazon and Flipkart are also selling BNPL products. Industry insiders claim that the introduction of Amazon Pay Later and Flipkart Pay has significantly boosted sales on their respective platforms. Fintech and payments firms like PhonePe and Paytm have also entered the BNPL market. Ola, a renowned ride-hailing aggregator, is now delivering its own BNPL service, Ola Postpaid, to its consumers.
The present BNPL models, according to Nomura, confront some significant problems in the country. “It takes a long time to set up an acceptance network and enrol merchants. A broad client base is also required for a higher acceptance rate among retailers. The higher cost for merchants compared to traditional card payments, as well as higher credit risks compared to credit cards, where credit judgments can be backed up by stronger data-driven risk models, will have an impact on the BNPL business, according to the report.
Some industry insiders believe that the evolution of BNPL, which mostly served non-carded customers, can help the credit card industry expand rather than endanger it.
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