Page 49 - Banking Finance December 2022

ARTICLE

amount within the defined repayment tenure, the Buy Now BNPL schemes (or any loans) are usually more transparent.
Pay Later facility provider will charge interest on the You pay the EMIs and that's it. Millennials don't prefer high-
amount. Also this payment delays will impact the buyer's interest rates, fees and low transparency. Credit cards hence
credit score. are not a good fit for those who are relatively new to credit
and are at risk of getting stuck in a debt trap. Pay-later
Enablers for BNPL options are usually interest-free, transparent, and a one-tap
checkout experience. Most 'pay-later' products are
Several startups such as LazyPay, Simpl, ZestMoney, and
absolutely free for consumers who pay on time, which is why
ePayLater, Flexmoney operating in this space have,
it is so popular with users who are looking for a seamless
essentially, changed the way credit works in India. Paytm's
experience when they buy online. Credit cards usually come
Postpaid also allows users to shop online and clear the
with an interest-free credit period of up to 45 days.
balance next month. Amazon launched its Pay Later option
in 2020 but customers can only sign up through the mobile
Many credit cards come with added costs like joining fees,
application. Flipkart also rolled out a similar option last year
and annual fees but BNPL options don't have such riders and
which offers repayment tenure of up to 35 days. Users can
do not charge a processing fee for joining. However, BNPL
also make partial repayment of bills. Recently, BharatPe, one
providers do levy additional charges such as late payment
of India's fastest growing fintech companies, also forayed
fee and pre-closure charges.
into this segment with the launch of 'POSTPE'. Apart from
these, traditional banks have also forayed into the segment
Credit cards are universally accepted, but usage of BNPL is
such as HDFC Bank's FlexiPay and ICICI Bank's ICICI PayLater
limited to partnering merchants, though the service
offerings.
providers are regularly increasing the number of partners.
You also get plenty of rewards, such as cash back, air miles,
The biggest USP of BNPL is that it caters to young or new-
and facilities such as special discounts, airport lounge
to-credit consumers in India who do not have credit cards.
accesses, complimentary travel insurance, etc with credit
Millennial and Gen Z who do not have any credit history but
cards, while BNPL is limited to just shopping.
are looking for short-term credit are eagerly adopting this
model. The pandemic induced lockdown, job losses, salary
The future of BNPL can be very bright as the concept will
cuts, and uncertain income have helped in BNPL gaining
attract more customers to purchase an item of their choice
momentum in India. Its market share in the e-commerce
instantly. Most of the providers who provide this facility offer
space is expected to grow rapidly.
repayment at no cost EMIs which in future may become the
preferred payment option especially among the youth.
BNPL- Is it better than a credit card?
The biggest benefit of BNPL products is convenience. One However, within its core it is still a type of loan which at the
needs to download the app, sign-in, check the spending limit end the customer has to repay. The lenders offering this
and start shopping. The customer is required to complete a service will have to be careful in offering this facility as not
basic KYC process and the credit amount is instantly made everyone will be capable of repaying the amount within the
available. For a BNPL, anyone over the age of 18 has to stipulated time period. The customers will have to
complete the e-KYC procedure, following which partner understand the failure to repay the amount on time to avoid
lenders approve the loan. But it is the lender's responsibility interest and drop in credit score. The future of BNPL looks
to ensure due process is followed before lending credit, good provided the customers are able to use the facility
which include taking the customer's data, checking their properly and clear the amount on time.
bank statements, their KYC, getting their PAN number and
identification. BNPL is a good option for those who do not have any credit
history but are looking for short-term credit, and quick
For credit cards, banks link eligibility with your annual income access to credit without hefty paperwork and
and credit score. Technically, you can apply for a credit card documentation. But while these payment plans with no
only if you have an income above a certain threshold limit interest free sounds enticing, be sure to read the fine print
but since BNPLs are small-sized-loans, it is easier to get one. and understand what happens if you miss the payment.

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