Since the turn of the millennium, FinTech has been at the forefront of financial innovation. The newest offering is Buy Now Pay Later (BNPL), which is set to revolutionize the online shopping and payments ecosystem in India. The BNPL facility is a payment option offered to customers during checkout on e-commerce websites. The product helps break down a large expense into small EMIs, instead of making an upfront payment.
Why BNPL takes all the credit
One may ask, with legacy banks offering EMIs, what was the need to offer a novel line of credit? E-commerce and brand sites are increasingly aware that they need to target the digital native population to drive growth. This comprises of the Millennials and Gen Zers, who possess strong intent and purchasing power in India. The challenge is that this segment is wary of using credit cards and paying interest and fees. This phenomenon is not limited to India. Various studies have shown that only a third of Millennials in the US and Europe have a credit card. In India, the problem is more intensified, as even those who wish to use a credit card may not be issued one.
The Buy Now Pay Later service is not perceived as a credit card loan, as it offers shoppers a revolving line of credit that gets replenished with periodical repayments. According to a study conducted by Australia’s corporate regulator ASIC (Australian Securities and Investments Commission), 60% of people using the BNPL facility were in the 18-34 age group. A similar trend can be expected in India.
What’s even more fascinating is that the study found that as many as 33% of the respondents were using only Buy Now Pay Later and did not feel the need for any other credit facility. The reasons BNPL could give other payment methods a run for their money are manifold but the primary reason is improving cash-flow of the customer’s personal finances with no added cost. Need for credit and better checkout experience are secondary.
BNPL is the fastest and most convenient form of financing. The registration process is seamless. It is conveniently available at checkout on ecommerce platforms. It doesn’t require you to be a customer of a bank credit card. BNPL’s one-click finance feature is attractive for today’s highly agile shoppers, who don’t have the patience to complete time-consuming formalities.
The pandemic-driven rally
Even before “coronavirus” become a part of our daily conversation, online shopping was growing at a phenomenal pace in India, driven by exponential growth in Internet and mobile device usage across the country. The Government of India’s policies and regulatory frameworks further propelled this growth.
The pandemic accelerated the transition to online shopping. Experts consider this to be a shift in consumer behaviour rather than a temporary phase during the lockdown period. In fact, the pandemic has been among the most defining events for consumer behaviour and the implications are expected to last well into the next decade.
It comes as no surprise that the online grocery market in India surged and is estimated to exceed sales of ₹22,500 crores in 2020, representing a whopping 76% increase over 2019. However, what about discretionary spending? The pandemic put household budgets under severe pressure. BNPL came at a time when the Indian customer needed it the most. It allowed millions of customers to get online and make purchases even without having a bank account. It eased the spending pressure and credit crunch on customers by distributing payment over three, six or nine months.
This allowed Indians to make aspirational purchases even during challenging times. The electronics segment has had the highest market share in India’s ecommerce retail market. During the pandemic, the category with the largest non-essential digital spending was home supplies. International surveys indicate that most people believe they were able to afford more expensive items using BNPL.
Flexible, no-cost deferred payment option allows millions of Indians to purchase products conveniently on their favourite ecommerce website or app. It gives retailers the opportunity to generate incremental sales by closing deals when customers would have otherwise restricted their purchases due to insufficient funds. BNPL is set to become a permanent and substantial part of the online shopping experience in the post-pandemic era.
(The author of the article is the Chief Product Officer at Capital Float)