BNPL or Buy Now Pay Later is a payment option that allows you to purchase without having to pay out of your pocket. In most cases, you sign up with a company that provides this service, and they pay you when you make a purchase.
However, once the lender pays on your behalf, you must repay the money within a certain time frame. When compared to a personal loan, the BNPL scheme charges no interest. You can either pay it in one lump sum or no-cost Equated Monthly Installments (EMIs). If you do not pay the amount within the specified repayment period, the lender may charge you interest on the amount. Any further delay could have a negative impact on your credit score.
A BNPL works in the following steps:
Purchase something from a participating retailer
Select the "Buy now, pay later" option
Make a small down payment on the total purchase price
The balance will be deducted in a series of interest-free EMIs
EMIs can be paid by bank transfer, cheque, credit card, debit card, or directly from the bank account
Some of the advantages of BNPL are as follows:
Improves affordability
Credit is available immediately
Transaction is safe and secure
Can select repayment period
EMI at no cost
Process that is simple and transparent
With this type of financing offer, there are some potential pitfalls to be aware of.
Terms may differ. It is critical to understand the terms of a BNPL loan before committing to it. For example, 0% interest may not be available for the duration of the loan, leaving you with costly finance charges later on, and there may be exorbitant penalties if you skip or miss a payment
Some have set prices. These programs include a fixed fee in your monthly payments, which can cost you more over the life of the loan than simply purchasing the item outright
They do not aid in the development of credit. Paying on time will not improve your credit. However, late payments may be reported and have a negative impact
Overspending may be encouraged. The ability to pay off a purchase over time can make it appear more affordable
The following are the eligibility requirements for using the Buy Now Pay Later feature:
You must be an Indian citizen
You must live in tier 1 or tier 2 cities
You must be at least 18 years old. In some cases, the maximum age of eligibility is 55 years
You must be a salaried employee
You must have a bank account and all of the necessary KYC documents
The following are some of the key distinctions between BNPLs and personal loans:
|
Personal Loan |
Buy now pay later |
|
Maximum loan offered may be more than Rs.25 lakh |
Maximum loan offered is Rs.1 lakh |
|
Secured and unsecured loans are offered |
Only secured loans are offered |
|
Interest is levied on the principal amount |
No interest is levied on the principal amount |
|
No restrictions on how the money can be spent |
Usage is limited |
|
Tenure of up to 60 months may be provided |
Tenure of up to 90 days
|
There are some distinctions between credit cards and the 'Buy Now, Pay Later scheme. Consider the following:
|
Credit Card |
Buy now Pay later |
|
Hidden charges are levied on credit cards |
BNPL follows a transparent and low-cost pricing model |
|
You must have a good credit history to avail a credit card. |
It is not mandatory to have a credit history |
|
Credit cards come with more flexible acceptance |
BNPL services/facilities are provided by select e-retailers and fintech organizations |
|
Credit cards come with a standard interest-free period |
Interest-free credit period can go up to 48 months |
|
Getting approvals is slightly difficult |
Easier approvals |
|
You have the option of paying only the ‘minimum due’ amount |
You have to pay the fixed EMI on the scheduled date |
|
You can earn cashback, reward points, air miles on purchases |
No such benefits |
|
Credit card |
Buy now pay later |
|
Upto 48% |
Up to 24% |
|
The interest rate remains fixed |
The interest rate varies depending on a variety of factors |
The pandemic can be attributed to the rise of BNPL service providers. With the increased demand for e-commerce services as a result of lockdowns and consumers preferring to split large expenses into smaller interest-free EMIs, BNPL has become a popular choice for many.
'Buy Now, Pay Later has a lot to offer, but it is still a loan, so be cautious when looking for it. While BNPL approvals are easy to obtain, failure to make payments on time can harm your credit score. As a result, just like with other loans, you must make timely repayments to maintain a healthy credit score.
The following are some of the BNPL players in the Indian market:
ZestMoney
LazyPay
Simpl
Amazon Pay Later
Postpaid Ola Money
Postpaid Paytm
Flexmoney
EPayLater
Floating Capital
Although most Buy Now Pay Later providers offer similar services, here are some factors to consider when selecting a BNPL partner.
Protection comes first. As a result, when choosing a Buy Now Pay Later service provider, make sure they're a certified lender. If they are not RBI certified, they must certify the license under which they are providing the services. If they are, see if they have mentioned it on their app and website.
Secondly, look over some basic information about the company, such as:
Establishment date
Company registered in India or abroad
Number of clients
Social validation
Third, while most BNPL options claim no fees or zero interest, as a merchant, you must understand the true cost involved. Even if companies claim zero percent onboarding fees or no annual fees, they are required to declare their IRR - Internal Rate of Return - so merchants must ensure that the company or app discloses all of these for their own protection.
Choose a well-known Buy Now Pay Later service provider in the marketplace. This increases the likelihood of authenticity. Also, before onboarding a BNPL service provider, perform a multi-level check.
While most Buy Now Pay Later service providers claim to not charge interest, it's not a bad idea to read between the lines. Even if the company says zero percent, you should double-check their IRR (interest rate of return) for your own peace of mind.
BNPL's future looks promising because the concept will entice more customers to buy an item of their choice right away. Most lenders who offer this facility offer no-cost EMI repayment, which is likely to become the preferred payment option in the future, particularly among the youth.
However, at its core, it is still a type of loan that the customer must eventually repay. Lenders providing this service must exercise caution because not everyone will be able to repay the amount within the time period specified.
Customers must understand the consequences of failing to repay the amount on time in order to avoid interest and a drop in credit score. The future of BNPL appears bright as long as customers use the facility properly and pay the amount on time.
In India, traditional banks are shifting toward a buy now, pay later model.
Buy Now Pay Later is one of India's newest emerging lending technology sectors. Several Buy Now Pay Later startups and well-established Fintechs are working their way around the country and testing new strategies to make this payment method the new, widely used payment mode. Furthermore, eCommerce marketplaces like Flipkart and Amazon India have entered this new payment territory.
Simpl, for example, works with approximately 2500 merchants and has a customer base of approximately 7 million people. It has a compound annual growth rate of almost 36%. According to sources, the Indian Buy Now Pay Later sector will reach USD 50 billion by the end of the fiscal year 2026. This demonstrates how many people were drawn to the lending platform even in its infancy.
Ola, one of India's largest ride-hailing aggregators, has also entered the BNPL market and is now offering Ola Postpaid services to its customers. Users can use the service to pay later on 300+ third-party platforms, including their own.
While startups are fueling the adoption fire, traditional banks are hesitant to venture into the territory of Buy Now Pay Later payments. They are concerned that this will have an impact on their lucrative credit card business in some way.
Some banks, however, believe that credit cards and Buy Now Pay Later can coexist and complement each other in a variety of ways. Banks are using BNPL to bring on new customers who previously refused credit cards.
For example, ICICI Bank provides its customers with in-store pay later options. This allows users to buy expensive items and divide the cost into smaller payments. Furthermore, the bank is providing a no-cost loan product, which eases onboarding and reduces paperwork, similar to credit cards.
Similarly, HDFC Bank introduced its FlexiPay program in 2018. It provides interest-free credit for up to 15 days with a credit limit of around INR 60,000. To expand its Buy Now Pay Later services, the bank has partnered with numerous online retail platforms, including Myntra, Bata, OLA, MakeMyTrip, Lakme Salon, Urban Company, CureFit, and others.
Aside from online retailers, brick-and-mortar stores can offer BNPL EMIs through POS device providers. Currently, BNPL is assisting many small and medium-sized brick-and-mortar businesses in recovering from the COVID-19 pandemic and increasing sales.
The introduction of Flipkart Pay Later and Amazon Pay Later boosted sales on both platforms, particularly during the holiday season. Flipkart officials stated in 2020 that EMI options and pay later were the highlights of their sales. Flipkart saw a 7x increase in spend via the pay later option, as well as a 1.7x increase in EMI scheme adoption. Amazon Pay Later has similarly staggering numbers.
In India, the Buy Now Pay Later (BNPL) payment sector may be in its infancy. However, it is hailed as the next big thing that will disrupt the entire payment industry. More and more Fintech firms, as well as NBFCs, are developing cutting-edge Buy Now Pay Later products to meet the growing cash-crunch-management needs of the Indian population.
Many payment companies intend to expand their product portfolios in this area as well. So why not? The segment is proving to be a win-win situation for all parties involved, including lenders and consumers. It's only a matter of time before this penny payment segment develops into a multibillion-dollar industry with profits flowing in all directions.
BNPL profits from both sellers and customers. Sellers pay BNPL a fee ranging from 2% to 8% of the purchase price if the customer uses the BNPL facility. BNPL players can also profit by consolidating their positions through various marketing or promotional expenditures if the seller can increase conversion or traffic.
Customers are charged interest ranging from 10% to 30% depending on their credit score, repayment tenure, and other factors. No interest is charged as long as the amount is repaid on time.
However, some customers may be unable to repay the amount by the due date, in which case a late fee is assessed. However, some customers may be unable to repay the amount by the due date, in which case a late fee is assessed. The payment of a late fee increases the revenue of the BNPL company.
Yes, BNPL is an installment loan because you pay the amount spent in Equated Monthly Installments (EMIs). After a certain period, interest is charged on the amount you spent, and if you do not pay within the specified period, a penalty is levied. A repayment period is established during which the amount is to be repaid.
Yes, you will be required to pay interest on your BNPL. The interest rate charged is determined by several factors, including the amount spent, repayment term, credit score, and so on. Some businesses initially provide a credit-free period. If you repay the money within that time frame, you will not have to pay any interest on it.
Both online and offline, you can use the buy now, pay later option. If you are making an online purchase, you can use the BNPL facility to make the payment immediately. Similarly, in the case of POS transactions, you can use the facility to make the payment by simply scanning the QR code and completing the transaction. There will be no need for you to enter a pin or one-time password (OTP). The only thing you should keep in mind is that the merchant should accept BNPL as a payment method.
Your credit score will not be affected as long as you repay the loan on time. If you clear the amount on time, your credit score is likely to improve. However, if you miss or delay payments, your credit score will suffer.
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