A guide to Buy Now, Pay Later

A guide to Buy Now, Pay Later

Over the last few years, Buy Now Pay Later (BNPL) is steadily gaining popularity. Indian Buy Now Pay later market grew at a CAGR of ~321 % by Gross merchandise value (total value of the loans disbursed to consumers), during FY’19-FY’21. The popularity of BNPL grew during the pandemic when we saw a significant rise in the eCommerce industry.

In India, BNPL is a payment option wherein you can sign up with a company providing this service to pay on your behalf. Then, within a stipulated time, you have to repay the amount. No interest is levied on the same. There are two options. You can either pay it as a lump sum or with no-cost EMIs.

However, if you fail to make the repayment, the lender will charge you interest on your amount, and your credit score will get impacted.

How does BNPL work?

The operational model is usually the same for different BNPL service providers, barring some terms and conditions.

Here’s the primary mechanism:

  1. Make a purchase
  2. Opt for the Buy Now, Pay Later option
  3. Make a small down payment
  4. The remaining amount is deducted through interest-free EMIs.

BNPL is different from purchasing with a credit card. BNPL usually doesn’t charge fees or interest. But they have a fixed repayment schedule. What you need to pay per week or month is decided in advance. Also, not all purchases are eligible for BNPL.

In the BNPL model, once the payment is made, businesses receive 100% payment upfront while the customer repays the same to the provider, one installment at a time.

Benefits of BNPL

The BNPL scheme benefits both the businessman as well the customer. Let’s go over some advantages of using this payment method for both vendors and customers-

  1. Instant payment received:For vendors, BNPL is a boon. They get paid instantly whether or not the customer pays their installments. This also means that the BNPL providers take all the risks and protect business owners and vendors from fraud and financial loss.
  2. Reach more customers:BNPL options are more popular with the younger generation. According to reports, more than 26% of millennials and almost 11% of Gen-Z shoppers used BNPL services for their recent purchases. By providing different payment options, reaching out to a larger audience becomes easy.
  3. Increase in conversions: By allowing customers to make payments over time, they get the joy of buying the product instantly, without going through the sticker shock that comes with the price tag. Generally, audiences are more likely to purchase if they can pay for it in installments.
  4. Better customer experience:Most BNPL providers don’t have a hard check for financing. Customers get an efficient and more convenient way of registering with them. There is no application, no additional fees, and no extra processing time. Customers can check out in a few steps with ease.

Bottom line

The idea behind BNPL is to let customers immediately get what they want, with a little extra time to pay for them.

Note: In June 2022, RBI issued guidelines that would impact the BNPL model. It stated that nonbanks can no longer load prepaid instruments — digital wallets, or stored-value cards — using credit lines. The RBI said that the only valid options for a buyer are to prefill their wallet with cash or to debit their bank or credit card accounts. RBI also clarified that the BNPL model needs to be examined and guidelines need to be framed for the new scheme in the lending domain.

While this might slow down the growth of BNPL, the story is far from over. We are excited to witness BNPL’s immense potential!

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