The payments sector is undergoing a transformation with the growth of e-commerce, digital payments, disruptive technologies and changing consumer values. Consumers are looking for options that are easy to use and affordable, and this has created a shift in preferences away from traditional modes of credit towards those that offer interest-free and budget options. One such choice is ‘Buy Now Pay Later’ (BNPL).
BNPL’s popularity skyrocketed during the pandemic, drawing millennials who are attracted to instant, convenient and all-digital methods of payment. It also attracted those on a tight budget. This flexible and convenient method is beneficial especially for those who don’t wish to own a credit card and avoid huge credit card bills, and those who are looking to build a better credit score. Simply put, it’s similar to the old ‘khaata’ system in which shopkeepers would keep a track of daily purchases and you would pay them later. BNPL makes your ‘khaata’ digital.
BNPL scores over credit cards too because they are not a feasible option for most and their penetration is at a very low 6%. BNPL, on the other hand, is a convenient and disciplined way to pay for purchases over a period of time. It has the added benefit of improving consumer’s personal cash flow at no additional cost. When you take a loan from a bank, you have to pay EMI that includes interest. Many BNPL vendors are providing additional loans at zero interest, thus improving affordability for the customer and fixing cash outflows at comfortable levels. Moreover, to avail the benefit of a BNPL scheme, you don't require a good credit score; loans are approved within minutes at comparatively lower interest or zero-interest rates.
The rise of e-commerce paves the way for the growth of BNPL. E-commerce is expected to capture 11.4% of the Indian retail market by 2026 from 7% today, according to a report by Deloitte. This growth has also resulted into the growth of digital infrastructure, online shopping, digital payments, affordability and convenience. The pandemic too acted as a catalyst, growing e-commerce and increasing traffic on BNPL platforms. No wonder BNPL is the fastest e-commerce online payment option now, projected to grow from 3% in 2020 to 9% in 2024, according to the Global Payments Report by Worldpay from FIS, a US-based financial services technology company.
This growth will spur more startups and fintech giants to establish a footprint in the local BNPL space, which will positively impact the economy. Also, as more companies enter this vertical, more jobs will be generated. Lastly, by allowing people to go beyond their purchasing power, BNPL raises overall consumer spending and, consequently, the national GDP.
Leading business organisations like travel companies, banks and e-commerce websites have hopped onto the BNPL bandwagon to get more customers. Soon, offline channels will adopt BNPL too, enabling you to make a wide variety of payments through this method.
The 2021 festive season was a trial run for BNPL, and it excelled on all fronts. With its potential for wide applications, this payment system is here to stay.
