Page 35 - Banking Finance September 2022

ARTICLE

has been the talk of the banking arena for some time now and brings into its fold even those left outside the structured
and can pose a serious challenge to the bankers in the retails financial system. Developed to cater to the underserved and
space is 'Buy Now, Pay Later' (BNPL) and fintechs are using unserved section of the population and the new generation
it to accelerate their growth. that's geared towards instant gratification, Buy Now Pay
Later isn't limited only to that; it is rather open to all,
What is Buy Now Pay Later? thereby unlocking previously untapped opportunities for
consumers, merchants, and fintech companies alike.
BNPL also known as Buy Now Pay Later is a payment option
where you can make a purchase without having to pay from
your own pocket. Generally, you sign up with a company What kinds of BNPL exist?
providing this facility who makes the payment when you There are two kinds of Buy Now Pay Later options. One is
make the purchase. Buy Now, Pay Later' (BNPL) is a type of the Interest-free option available to the consumer which is
short-term financing which allows you to pay in instalments sub-vented by the brand. In this model brands bear the cost,
by the end of the stipulated time period for making this is because Fintech has enabled a sale for them which
purchases. In India, quite a few online merchants and otherwise would have not been possible if the consumer did
Fintech companies are offering BNPL facilities to customers not have an incentive to pay it in instalments at no extra
as a convenient payment method and an excellent cost.
alternative to credit cards.
The second kind of BNPL is where a customer has to pay a
Accessible, transparent, and offering no-cost EMIs, BNPL is nominal amount as interest. The interest is nominal and the
all set to change the lending landscape.The rise of BNPL total amount is split into smaller instalments, thereby
service providers can be accounted for the pandemic. With making the purchase more affordable for the consumer.
the increased demand for e-commerce services due to
lockdowns and consumers preferring to break down large Why would a customer choose this
expenses into smaller interest-free EMIs, BNPL has become
option?
a go-to option for many. 'Buy Now, Pay Later' has a lot to
The zero-cost EMI option is a no-brainer for financially savvy
offer, however, it is still a loan and you need to be careful
consumers. It allows them to conserve cash and better
while looking to avail it. While you can get BNPL approvals
manage cash outflow.
easily, failure to make payments on time can hurt your credit
score. Hence, just like other loans, you need to ensure that
The interest charged option is best suited for New to Credit
timely repayments are done to maintain a healthy credit
customers, who are at the early stages of their earning
score.
lifecycle. Perhaps they just entered the workforce, do not
have any credit history and their earnings are modest but
It is a powerful tool that supplements consumerism boom,
growing.
with the aim of providing a digital credit card experience
They will avail this method from an affordability perspective
and also invariably start building a credit history. If they pay
back in time this will positively affect their credit score which
will set them up for access to other financial products as
their incomes and score mature.

A BNPL is most likely the first financial product most
millennial or Gen Z will experience. This sets up a stage for
responsible lenders and responsible borrowers.

How BNPL is different from credit card:
BNPL follows a transparent and low-cost pricing model. It is
not mandatory to have a credit history. BNPL services/

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