The Buy Now Pay Later (BNPL) phenomenon: what is it?

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Want to flaunt a voguish dress in your farewell, but cut on a budget? Or do you want to buy the next best mobile set available on the market but the last days of the month don’t allow it? Then this article can be of help for you!

We are all suffering from the cash crunch of the last few days of the month or, in fact, many are barely coming to an end, waiting until the start of next month for the dark clouds to fade. The shopping list for a piece of furniture, washing machine, refrigerator, air conditioning, vacuum cleaner and so on … is still pending in the monthly shopping list but just because we run out of money, we delay the purchase. or wait for the sale.

Sale! Sale! Sale! In this booming world of e-commerce, these words are set in stone. And, who doesn’t want to jump on the deals, letting you buy 10,000 stuff in just 8,000 or maybe less than that. But, such offers arrive during the holiday season and delaying demand is not always an option. So what can be the next step: buying things on credit? Surprisingly, not all Indians have a credit card.

According to Statista Research Department, in India, as of August 2020, nearly 58 million credit cards were in use, and the first wave of covid-19 played a huge role in this regard. Failure to pay by credit card can cost you late fees and interest that is charged on the unpaid amount.

Often times, people don’t even know how to properly use credit cards, so they don’t go for credit cards. So, to make the credit system easier, “Buy Now, Pay Later” apps are the new lenders. With the advent of Buy Now Pay Later, known by its acronym BNPL apps, obtaining a short term microcredit from buying clothes to food on an e-commerce site on credit has become quick and easy.

An overview of the Buy Now Pay Later segment:

According to India Buy Now Pay Later Business and Investment Opportunities (2019-2028) Databook, released in February this year, Buy Now Pay Later (BNPL) service providers are tapping into a large group of Gen Z and Millennials who are reluctant to use credit cards in India. Containment due to the coronavirus, job losses, wage cuts and uncertain earnings have also contributed to BNPL’s popularity in India.

For example, LazyPay, a major player in the BNPL payment method in India, has experienced a significant increase in its total customer base and now serves more than 30 million people in the country. Following the coronavirus outbreak, Simpl, a BNPL payment provider in the country, saw a 40% increase in daily necessity transactions at hyper-local stores. The growing popularity of the BNPL payment method is also encouraging major players like Paytm to enter the market; they have partnered with HDFC bank to facilitate BNPL’s services.

The report says that when it comes to BNPL and digital payment India will see an increase mainly due to its demographics and high percentage of young people. The use of BNPL payments is expected to increase gradually throughout the projection period, with a CAGR of 23.5% between 2021 and 2028.

In another research report from Medici Research, the Indian digital lending market could exceed $ 100 billion by 2023, posting a CAGR of 36%. In India, there are 330 startups in the digital lending industry. Due to the social and economic effects of the COVID-19 outbreak, digital payments have increased dramatically, with UPI reaching 1.34 billion transactions in June 2020.

How do the Buy Now, Pay Later apps work?

Buy Now Paying Later is not a new idea, rather it works on the already dominant systems that we use with our Kirana stores or our nearby grocery stores.

How? ‘Or’ What?

Remember, in many families it’s a system where we buy dairy milk every day, but we don’t pay for it regularly. We wait until the end of the month, we take stock of the number of liters of milk we bought, and at the start of the new month, we pay him the royalty from last month. Basically, the purchase here was on credit. And, as soon as contributions are paid, a new cycle continues. Here is one thing to note, we do not pay him any late fees or interest for any late payments. Everything that works here is based on trust.

Simply put, if we say, then most of us have read outside of Kirana stores “Aaj Nakad Kal Udhaar” ( Pay cash today, go into debt tomorrow). But, BNPL is the reverse. Take on debt today and pay later.

Let’s understand it with the help of an example.

You want to buy a pair of jeans that cost around 5,000, and you have no surplus left for the month. Now, with the Buy Now Pay Later option, you can buy that pair of jeans and pay later to the credit facilitator later.

Suppose you visit an e-commerce site, select the pair of jeans you want to buy, add it to the cart. When you go to checkout, you have three to four options. Cash on delivery (COD), debit card payment, UPI, credit card payment and BNPL option. The BNPL option is already linked to a credit facilitating company.

Now when you choose the Buy Now, Pay Later option, you are taken to an app where you are supposed to have an account. By filling out a few credentials, you’re good to go!

Now the purchase is made. The product will be delivered to you. Your transaction with the e-commerce site is complete, all you have to do is deal with the BNPL application; you have not yet paid the contributions!

How are you going to repay the loan?

It’s easy! Many BNPL apps give you the features of a hassle-free 15-day repayment period with no additional interest. If you bought a pair of jeans on July 20, you must repay the amount within 15 days at the app. Even, you can repay your microcredit in IME in 3, 6,9,12 months. There are several discounts, offers are in progress on these platforms, the customer should carefully read the terms and conditions. Also, some apps offer short term loans for other purposes, so customer should check on their side.

Not only that, the interest rates, the repayment cycle period, the late fees all vary on different platforms, so it becomes the customer’s duty to check. The did not say the rule of Warning applies, but if you shop carefully with all eyes open, you can get a kill.

Is it as easy as it sounds? What’s the catch?

BNPL apps are synonymous with credit cards, but they are digital, not physical. Just like credit cards, they also charge additional fees based on the amount of outstanding IMEs or defaults. From there, the business obtains a large portion of the income. And, with this BNPL service facility, a potential customer turns into a sale.

So if you are someone who enjoys shopping and can’t really tell the difference between need and want, then beware! you can get addicted to these platforms. Who knew, you might also end up selling your stacked stocks like Rebecca Bloomwood did it in Confessions of A shopaholic!

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