What Is Buy Now Pay Later (BNPL)?

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Buy Now Pay Later (BNPL) schemes offer the option for consumers to buy products and pay later, within a stipulated time period. Here are the key features of BNPL schemes: 

  • To be eligible for the BNPL scheme, consumers have to purchase products only from the merchant partners affiliated with the BNPL service provider. 
  • Any failure on their part to repay on time will attract interest charges dependent on the bill amount. 

BNPL schemes have become a popular financing mode in the last few years in India, especially over the past 2-3 years. This popularity has been further expanded due to the Covid-19 pandemic as it emerged as a more convenient payment mechanism reducing the burden on borrowers through no-cost EMIs. 

By 2024, according to the Goldman Sachs report, the Indian e-commerce sector is expected to become a $99-billion market, mainly driven by huge consumer demand. This demand is expected to fuel the growth of the BNPL sector. It is expected to become the fastest growing online payment method, increasing its share from 3% during 2020 to 9% in 2024.

Key Features of BNPL Schemes

To understand why the BNPL scheme gained popularity, let us understand the features of the scheme.

  • Pay over time

The core principle of this scheme is that it allows its customer to pay over a specified time period but buy today. The credit period under BNPL services varies between 30 days to 36 months, depending on the purchase type, service provider and transaction value. 

The credit amount is also dependent on the merchant partner. For example, Flipkart offers a seamless checkout process under BNPL services for up to Rs 10,000, while BNPL services for ZestMoney can be undertaken for a limit of Rs 60,000.

  • Seamless Shopping Experience

Customers get to enjoy a seamless shopping experience through BNPL services, leading to its increasing popularity. Being a fully digitized solution, BNPL ensures a speedy hassle-free one-click checkout process. 

  • Easy Sign-up procedure

For availing of BNPL services, the customer has to sign-up once at checkout, after which they can proceed to make use of the BNPL services for conducting their shopping across various brands and merchant partner websites. 

  • Low-Cost Flexible financing

At most times, BNPL offers low cost or no-cost financing. It follows a  transparent and low-cost pricing model as brands offer subsidised products to give customers the best value for their products. 

Customers are also aware of how much they would be paying for the products. It also has a flexible repayment option giving customers time to time out between their purchasing a product and making the payment within the stipulated time period under such a scheme. Customers can avail of this short-term credit option to make instant purchases and pay for them at a later date. 

  • Fully Digitized Solution

BNPL is a 100% digitized online instant sign up process. Customers can make use of the facility from anywhere in the country, just by signing up. With digital KYC through BNPL services, customers get instant approval and can start transacting.

  • Easily Accessible

BNPL is designed for a larger target market. As such, consumers who are new, credit customers, people with low credit history can all apply to the scheme.  Most of the BNPL providers apply alternative data and proprietary models to approve the customers, so it becomes accessible to a wider target audience. Being a fully digitized online instant solution, it is easier to access, apply and get approvals under the scheme. There is no intermediary like an agent to get the paperwork done, customers know whom they are dealing with.

Additional Reading: What Is A “Pay Later” Service & Can A Pay Later Purchase Impact My Credit Score?

  • Lower Interest Charge

BNPL service providers charge between 0 – 24% interest rate depending on the merchant partner, payment time period and the customer who avails of the service. As such, this mode of financing is becoming more popular than credit cards which have higher interest rates and hidden charges.

Why are BNPL Schemes gaining popularity among Indian consumers? 

Indian consumers are thus seen to prefer BNPL services mainly owing to its transparent transactions and no hidden charges as seen with credit cards. Paying at the time of delivery helps create trust in the transaction undertaken. Also, the cash on delivery option is available under BNPL services, which gives true 1-click checkout. 

The Other Side of the Coin: Cons of BNPL Schemes

However, in spite of all the benefits and attractive features offered by BNPL services, customers should always maintain a careful approach while going for the buy now pay later service. Late fees or penalties as one-time fees get charges, which are usually not compounded, though this could differ from lender to lender. 

All said, BNPL is still a type of loan wherein any default on the part of the customer to make payment could be reported to the credit bureaus in India. Any negative report could hamper customer’s creditworthiness for availing potential loans from lenders in India. So, customers should use BNPL services prudently to get the maximum benefit out of it.

Final Thoughts

BNPL services ensure easy registration, the convenience of easy and quick check-out and a fully digitised online solution. As such, this service is gaining huge popularity among customers in India, especially the millennials who use BNPL for meeting their various financial requirements.

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