A Complete Guide to Buy Now Pay Later

What exactly is BNPL Payment?

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.

How does BNPL operate?

A BNPL works in the following steps:

Benefits of BNPL

Some of the advantages of BNPL are as follows:

BNPL's disadvantages

With this type of financing offer, there are some potential pitfalls to be aware of. 

Buy Now, Pay Later Eligibility Criteria

The following are the eligibility requirements for using the Buy Now Pay Later feature:

The distinction between Buy Now, Pay Later and Personal Loan

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

 

The distinction between a credit card and a BNPL

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

Comparison of interest rates (Credit card vs BNPL)

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.

BNPL Market Providers in India

The following are some of the BNPL players in the Indian market:

What Should You Look For When Choosing a Buy Now, Pay Later Service Provider?

Although most Buy Now Pay Later providers offer similar services, here are some factors to consider when selecting a BNPL partner.

1. Security 

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:

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.

2. Adaptability

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.

3. The Commission 

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.

The Future of Buy Now, Pay Later

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.