Buy Now Pay Later (BNPL) has gained tremendous traction from pre-covid levels to what we see now. Pine Labs, India’s largest BNPL EMI processing platform witnessed 60-70 more percent demands compared to January 2020. Similarly, Zest Money has seen demand in excess of 140 percent. Capital Float, partnered with Amazon Pay Later claims it has financed ₹400 crores within the span of seven months. What indeed is brewing with this one-tap user experience product?
Understanding Buy Now Pay Later finance
BNPL offers hassle-free instant credit. It is form-agnostic, unlike plastic cards. Flexible contracts, easy payment terms and eligibility based limits that you can bite. You tap your credit when you need it. When you need to check out or buy. One can digitally apply while shopping and pay with the credit facility. The transactions can be small ticket or medium to large, where they can be aggregated for a billing cycle. There is no interest during the billing cycle, just like traditional credit cards which offer 60 days of interest-free period. The interest is subsidized by the bank or retailer or merchant.
The affinity to Gen Z customers
“Among millennials who are entering a stage of life where big-ticket purchases are becoming more relevant, many are choosing to use credit options at the checkout counter,” said MoneyTap, which recently launched BNPL solutions.
A large population of millennial customers are new-to-credit (NTC). According to a report by Credit Suisse Group AG, India’s digital payments market is expected to grow to $1 trillion by 2023, an increase of five times from the current (2020) $200 billion market. A lion share of these is made by the Gen Z segment. They cannot afford to have a credit card. The other part of the stratification belongs to the low-income-group (LIG) or segment whose cashflow affected by Covid-19. These modern borrowers like a transparent financing option. They like the convenience of aggregating their expenses and pay once in a month or fortnight at the convenience of smartphones. For instance, for any purchase between the 1st and 15th of the month, the first EMI will be due on the 5th day of the next month and for any purchase between 16th and till the end of the month, the first EMI will be due on the 5th day of the month next to the subsequent one. For the salaried segment, this is a boon. They have choices to choose no-cost-EMI or flexible tenor at lower interest rates, should there be a hardship.
Well, how BNPL differs from Credit Card then?
BNPL is a digital credit card in disguise. While there are more nuances to it at the bank/issuer level, largely both offer a interest-free period to the customer. Post that period, CC charge 24-36 percent APR while BNPL offers small grace periods, facility to convert to EMIs (loan) with attractive APR or late payment with a penal fee. Like, Sezzle offers, reschedulement with a nominal fee. First time/one-time reschedulement is free. With Credit cards, unless the borrower manages them effectively, there is always a fear of getting into the debt trap. Unlike BNPL, when you default a credit card payment, or unless you pay the full due, the interest and fees accrue from the start of the billing cycle. The interest rates in credit cards tend to vary based on past repayment behavior. The instant approvals and setting of credit limits pose inherently what is the capacity to pay, unlike credit card limits. The overall convenience of managing a credit card versus BPNL – a form of factorless simplification appeals greatly.
Popular apps in the BNPL space
Capital Float, FlexPay, Zest Money and EasyPay, Simpl, Lazypay, splitit, FlexPay, sezzle, Slice, Klarna, Affirm, Quadpay, Viabill, Zebit, Paypal Credit, ePayLater, Mi Credit, Paytm Postpaid, MoneyTap and more.
Why it is becoming increasingly relevant to customers?
A plethora of innovative options in BNPL financial delivery. Take for an example of sezzle that offers to split any payment into 4 equal parts. Some work well for food and grocery order. Some work well for consumer durables or online purchases. One of my colleagues diversifies payments into Simpl or Lazypay for better expense tracking. Amazon Pay powered by Capital Float offers no-cost-emi and flexible EMIs with attractive interest rates for 3, 6, and 9 months. Slice offers a simple and free card powered by Visa. Many BNPL providers offer upgraded limits with transactional volume and regular repayments. Also, the repayments are frictionlessly offering various ways in which they can be paid. e-Mandates or Auto-debit Arrangement enables easy and on-time payments. Loyalty, cashbacks, promotional offers, seasonal schemes are others to name a few. The merchant or retailer affiliation makes the checkout process so easy – just-in-time. In many countries, it does not affect the credit scores given the initial pull is a soft enquiry. Simple and yet powerful eKYC to onboard varying from ID verification to video KYC to CKYCR comes to the rescue.
What Finflux can do to power your BNPL?
Finflux offers BPNL in a box. Whether you want us to develop based on your customer journey or wish that to be an API-led solution, we can help. Our RESTful APIs and Webhooks can offer you to orchestrate all you need for LOS and LMS engine while you keep your secret sauce, AI/ML in-house. Finflux offers STP in workflow processing so that you achieve high conversions. You can limit or expand your geographies with serviceable pin or zip codes which is critical to quality. Set master limits easily and upgrade and downgrade based on events. Monitor fraudulent usages. You can suspend/unsuspend and block/unblock the facilities offered based on policy breaches and inactivity for a period. Alternate credit underwriting or ability to imbibe your scores and act upon, unlike traditional credit card sort of underwriting. A wide array of loan servicing functions offer rescheduling, restructuring, change of mid-term graces, repricing the contract, fees & penalty matrices just suited for BPNL facility gives time to market and covers your product tailoring experience. This also includes refunds to be handled back into BNPL accounts should it happen based on the highest to lowest DPD when the dues are amortized already. In short, customer acquisition right at the point-of-sale to serviceable options to match the customer experience, we got you covered.
References
https://www.bloombergquint.com/business/buy-now-pay-later-gains-currency-in-pandemic-times