20/04/2024
Consider this scenario: you wish to buy a ₹ 3500 bag on an e-commerce website. However, it is beyond your sufficient funds. Your impulsive nature takes over and you convince yourself to add it to your shopping cart. You decide against it just a few moments before you make the payment.
Just then you get a much-needed push when you’re given the choice of Buy Now, Pay Later. As the name implies, you may literally buy now and pay later. So you don’t have to pay the ₹3500 right now; instead, you pay it two months later at 0% interest. What’s the catch, you might wonder? Why would a merchant allow you to take a product without paying for it?
Let’s break it down and understand BNPL.
BNPL allows you to make a purchase now online or offline and pay later at a time that is convenient for you. It’s almost as if you’re using a credit card without having one. For a variety of reasons, these payment options are popular among Indian millennials and Generation Z.
Today, we’ll go over all you need to know about buy now, pay later method and how to make the most of them.
That seems quite straightword. But how does BNPL operate?
The companies that offer this type of credit generally have an agreement with a number of different retailers. To begin with, the BNPL plan may only be used if the purchase is made from one of these retailers. These merchants get paid either a percentage of the purchase cost or a fixed sum every transaction. The BNPL company pays the merchants in full and then seeks repayment from their consumers. Another thing worth noting is that the seller asks the customer to choose a payment option up front, such as six payments on a predetermined date.
Customers benefit from Buy Now, Pay Later options as well. Customers are usually required to deposit a portion of their credit limit at the outset. They also charge interest on the purchase amount, which is calculated depending on the customer’s creditworthiness and payback period. If the customer doesn’t make the payments on time or doesn’t pay off the debt before the interest-free period ends, the customer may be charged significant late penalties and interest.
This deal obviously sounds attractive for the customers. Now, the question remains how are the BNPL providers earning from this?
BNPL providers make money from both retailers and consumers.
If a consumer utilises the BNPL facility, suppliers pay BNPL a fee ranging from 2%-8% of the purchase price. If the seller is able to enhance conversion or traffic, BNPL players can gain money by strengthening their positions through various marketing or promotional expenditures.
Customers are charged interest ranging from 10% – 30%, depending on their credit score, payback tenure, and other factors. There is no interest charged if the money is repaid on time.
Most providers, however, will levy a fee for any missed payments, which might accumulate if more instalments are unpaid.
Terms and conditions vary among providers. The late payment of fees improves BNPL companies’ revenue over time.
Decide it after looking at the pros and cons.
Advantages of BNPL
- Affordable, flexible payments option for high-value products.
- Improved customer experience.
- No processing fees
- No hidden charges
- Zero documentation required
- Instant access to credit
- Safe and secure transaction
Even though this scheme is too good to pass it certainly has drawbacks too.
- Confusing deals from different providers.
- Encourages impulse purchases
- Missing payments could trigger charges or penalties
- Hard to receive a refund
- Encourages consumer debts
The Way of Future
For the convenience of their customers, several national and multinational companies, such as Amazon and Flipkart, have embraced this business model.
According to Redseer, the BNPL market in India would grow to $45-50 billion by 2026, up from $3-3.5 billion presently. They also predict that the number of users will rise to 80-100 million from the existing 10-15 million.
MobiKwik, one of the market’s leading BNPL providers, estimates that revenue from the category accounted for roughly a fifth of its total revenue of 3.02 billion rupees for the fiscal year ending March 31.
So, given the current situation, we can infer that BNPL is a blessing for many potential borrowers who desire credit with a simple repayment cycle, particularly youth, millennials, and those living in small towns and villages who do not comprehend credit card cycles.