Page 48 - Banking Finance December 2022

ARTICLE

Covid-19 has brought in a paradigm shift in India's digital couple of years, there has been a major uptick in the
payments landscape. Therefore, consumers look for financial number of online shoppers in Tier 2 and 3 cities due to
services that offer ease and affordability but often due to improving internet penetration, increasing awareness about
high interest rates, fees and hidden charges levied on credit ecommerce and adoption of cashless payments. The success
cards, people refrain using it. However, the BNPL model of BNPL in the Indian context can be attributed to the fact
works in a similar way with low or no interest rates. It that it offers formal micro-lending in an informal way,
finances smaller ticket items and allows consumers to buy without putting customers through the cumbersome
the essentials and pay at a later date. formalities of loan processes of traditional banks.

Shift from Traditional Banks towards BNPL - a new concept
BNPL Model BNPLs are small-ticket loans that allow online and offline
purchases, when it comes to making instant payments mostly
While India has handful of players in this segment, to capture
via apps that function like a Paytm or a PhonePe. This short-
the industry further. Traditional banks such as ICICI Bank
term financing option allows consumers to buy products and
(ICICI PayLater) and HDFC Bank (FlexiPay) have also stepped
then pay for them during a stipulated period. They can either
into the competitive BNPL space. Buy now pay later (BNPL)
pay for the purchases in a lump sum amount or through no-
is an emerging lending tech sector in India with the presence
cost EMIs. The core tenet is that it enables the borrowers
of several startups and fin-tech. Many BNPL startups such
to afford what is to be bought today but pay for it over time.
as Simpl, Lazypay, Zestmoney, ePayLater, ecommerce
marketplaces Flipkart and Amazon India also offer their own
These loans typically require an upfront deposit payment
BNPL products, while even fintech and payments companies
representing a portion of the purchase amount. After that,
such as PhonePe (via Flipkart) and Paytm have ventured into
the remaining balance must be paid off in installments over
this territory. Indian ride-hailing aggregator Ola also
a few weeks or a few months depending on their financial
recognized the potential of BNPL and started offering Ola
health. So the interest-free period may vary from 15 to 30
Postpaid, which also offers a pay-later option for 300+ third-
days, beyond which the customer can repay in a single shot
party platforms, besides Ola itself.
or in EMIs spread over 1-12 months. The primary driver
behind the rise of the BNPL segment in India is higher
While startups have led the adoption charge, traditional
purchasing power and informal nature of accessing credit
banks have held back from venturing into BNPL due to the
that it facilitates.
fear of cannibalizing their lucrative credit card business. It
is only lately that banks have realized that credit cards and
In terms of cost, buy now, pay later plans usually don't
BNPL can coexist and complement each other. Banks are
charge any interest or fees, but if a buyer fails to pay the
using BNPL to attract a new set of customers that have so
far stayed away from credit cards. For instance, ICICI Bank
partnered with payments giant Pine Labs to offer in-store
pay-later facilities to retail consumers. This allows
consumers to make high-value purchases with payments
split over monthly installments (EMI). Besides offering a no-
cost loan product, it eases on boarding by reducing
documentation.

E-commerce is gaining momentum in India with consumer
and retail business adoption at an all-time high. Many
companies are trying to increase and maintain a strong
foothold in Tier 2 and Ties 3 cities due to the rise in demand
from these markets, they are also aiming to expand their
horizons in metro Cities and Tier 1 markets to cater to the
rising disposable income in these regions. Over the past

48 | 2023 | JANUARY | BANKING FINANCE