Photo courtesy Anete Lusina on Pexels.
Buy now pay later (BNPL) is a financing tool that is turning into a craze among young shoppers. It allows shoppers to buy something now and pay later with an interest-free period within the defined payment terms. It has turned into a boon for Gen Z and brings into the fold the unserved section of the population that had been left out of the financial system.
The loans are targeted at the millennial and Gen Z population and offer them credit for small amount purchases. The interest-free period can range from 15 to 45 days and the credit from Rs 500 to Rs 60,000 sometimes even going up to Rs. 1 lakh. The interest-free payment window is the main attraction for the shoppers and they have to repay within this period. If they fail to pay in this window period the lender will charge interest on the amount that is unpaid.
Some buy now pay later (BNPL) players in the Indian market are:-
- Lazypay.
- Simpl.
- ZestMoney.
- Flexmoney.
- Paytm Postpaid.
- OlaMoney Postpaid.
- Amazon Pay Later.
- ePayLater.
- Capital Float.
During the COVID 19, pandemic online shopping saw a huge surge and with it the BNPL apps began to be used in increasing numbers in the Tier-II cities. The salary cuts resulted in strong demand for credit to purchase essentials and people were able to purchase items without the requirement of interaction with stores persons.
Even the banks have woken up to the huge opportunity in this space and HDFC Flexi pay, ICICI PayLater, Axis Freecharge Pay Later, Kotak Mahindra Bank are all providing this facility.
Ecommerce players have launched their own buy now pay later plays, like Amazon pay and Flipkart Pay Later, which have helped people to get a small amount of credit and in turn increased their sales. Amazon Pay Later has more than two million users in India.
The growth of the BNPL industry in India is expected to remain strong with a CAGR of 28.9% expected during 2021-28 and the BNPL GMV (gross merchandise value) will increase from $15 billion today to $100 billion by 2025.
Categories, where you can shop using, buy now pay later(BNPL)-
Laptop- Laptops of leading brands such as Dell, Lenovo, HP, Apple, and Asus can be purchased with BNPL with no-cost EMI options.
Home Appliances- Home appliances like smart TVs, ACs, washing machines, kitchen appliances, and music systems can be purchased at no-cost EMI (0% interest schemes).
Mobile phone – Smartphones can be procured from Amazon, Flipkart, and Croma using the BNPL facility.
Fashion – Fashion apparel and accessories can be purchased from major fashion websites like Myntra and a person can make a purchase and pay later through flexible payment options.
Travel- Holidays to Europe and Maldives can be within your range and you can buy travel and holiday packages from the partner sites such as MakeMyTrip, Yatra, Pickyourtrail and pay for it later.
Furniture- Beautiful furniture can be purchased for your home with the help of BNPL.
Education- Your financial requirements for educational courses at UpGrad, Edureka, Udacity, and other educational sites can be met by this facility.
Insurance- Insurance plans can be purchased across the partner companies like ICICI Lombard, SBI General Insurance, and Royal Sundaram by buying now and paying later.
Eligibility criteria for buy now pay later (BNPL)-
The eligibility criteria for buy now pay later can be different for different lenders. But some of the common features are-
- The applicant must be a resident of India.
- The applicant must be minimum 18 years of age and maximum 65 years of age (The upper age limit varies according to lenders).
- The individual must have a regular source of income (salary or from business.)
- The individual must have a valid bank account with the KYC documents in place.
Documents required-
- ID proof- Aadhar card, PAN Card, Voter ID etc.
- Address Proof- Utility bills, Ration Card etc.
- Income Proof- Salary slips, Form 16, bank account statement etc.
How does the buy now pay later (BNPL) model work?
E-commerce players like Flip kart and Amazon tie-up with NBFCs and banks. The finance partner for Amazon Pay Later is Capital Float and when you make a purchase, you select Pay Later as the option for payment and then repay the amount over the defined period i.e. few weeks to months. For auto repayment, you will have to link your bank account or debit card and the due amount will be automatically deducted from your bank account or the debit card.
BNPL makes money from sellers and consumers. The sellers pay BNPL fees between 2% to 8% of the purchase amount when the customer uses BNPL. From the customers no interest is charged as long as they repay the amount on time, but when they are not able to repay the amount a late fee is charged and this adds to the revenue of the buy now pay later company.
Pros and Cons of but now pay later (BNPL):
Pros-
1) It is very easy to set up a BNPL account. The account can be set up in a few minutes and the BNPL providers don’t do a credit check like the credit card applications.
2) The transaction process is very easy and convenient. Once you have created an account purchasing from a BNPL provider is easy. BNPL providers are integrated with the online stores at the checkout.
3) If you make the payments on time there is no interest charged on the amount borrowed.
4) Buy now pay later(BNPL) can be an alternative to the credit card as the interest charged on late payment is higher in the credit cards and also the credit cards have joining fees and other formalities involved.
5) The payments can be linked to your bank account or your debit card and get automatically deducted from the account indicated during the application.
Cons-
1) One of the biggest drawbacks of BNPL is that they can make you go for impulsive purchases and you will soon realize that many of the things that you have purchased are not required.
2) When you miss a payment there could be fees and penalties.
3) Interest rates on late payments are much higher than bank lending rates or personal loans.
4) If you have trouble meeting BNPL payments that are not made on time it can have a negative impact on your credit score. Though BNPL platforms don’t carry our credit checks, banks still consider BNPL loans as lines of credit. This can affect your ability to get a credit card, car loan, or home loan in the future.
You would be thinking both credit cards and BNPL can be used to make payments for the purchases. So what are the differences?
Comparison of Credit card and BNPL–
- The BNPL schemes are available at interest free credit and the interest free period may range from 15-30 days and after this the consumer has to pay back in lump sum or installments. When a person defaults on the payment there are two charges involved. One is the late payment fee that is between Rs 500-1000 and the other is the penal interest of 2-2.5 percent per month.
- When downloading app check if the company is holding RBI license and it mentions on its website the grievance redressal mechanism and interest rate policy.
- Study the terms and conditions regarding cancellation and returning back the product. A person should be aware of what he is buying and the details of the lending program.
The ability to postpone payment and split into smaller 4-5 payments at almost the same price looks good. But the easy availability of credit can make a person get carried away and make unnecessary purchases. So before making a purchase ask yourself if you truly require the product and if the payment would fit your budget. If the answer is yes then go to set up for making automatic payments so that you don’t miss the payment dates. Never overstretch and overleverage. Younger persons should always remember that they are going to create a credit history for future purchases and if they manage well they would get loans easily in the future. Buy now pay later is certainly useful to a person when managed correctly.