Rise In BNPL And Its Impact In The Credit System

Buy Now, Pay Later (BNPL) is in vogue at the present time. From retailers to comsumers, BNPL has been a win-win transaction facility in various aspects.

As the name suggests, Buy Now Pay Later platforms provide the facility of paying later while ensuring quick purchase of goods. Customers can easily convert the payment amount into shorter tenure EMIs. These EMIs are repaid over a few months as per the convenience. Normally such an arrangement is completely interest free for the customer. Retailers or merchants themselves bear the burden of such interest in most cases to promote their business.

Boost in the usage of BNPL

In the last few years, there has been a big boom in BNPL transactions. A large number of people have started using this payment technology in the crisis of diminishing jobs and uncertain income after covid. The BNPL system is being very much liked among the youth or people using the facility of credit for the first time.

According to some research reports, youth use BNPL the most for purchases related to expensive smartphones, heavy appliances, vehicles, fashion etc. Companies providing such facility have seen a manifold increase in BNPL applications.

Amazon Pay, LazyPay, AirPay, Paytm, Flipkart, Zest Money and many more are the organisations providing BNPL facility to people these days.

Anup Agrawal, Business Head of LazyPay says,  "BNPL represents a growing payment trend as consumers, especially young Indians, are increasingly looking to defer their payments as they want to enjoy experiences and avoid committing to long-term debt obligations. The hassle-free experience offered by BNPL, easy accessibility and surge in digital payment is driving demand of BNPL as it emerges as a preferred mode of payment for many.With changing consumer preference, which is, no touch digital & convenient products, Buy Now Pay Later will continue to see higher adoption in coming years."

Reason for the Trend

The biggest reason for the attraction towards the BNPL payment system is the convenience and less exprensive. Despite acting as an alternative to credit cards, it is interest free for most of the people. Also, due to no hidden charges, people are getting attracted towards this side.

Kunal Jhunjhunwala, founder and MD of Airpay says, "BNPL is ushering in a change in credit availability akin to UPI brought to bank transfers or payments. It is facilitating impulse purchases for consumers and expanding digital payments for merchants. But as the old adage goes, with great power comes great responsibilities. Easy access coupled with a lack of awareness and higher impulse spending can easily set the Consumers on the course of a debt trap. Most consumers are not completely aware that such purchases get listed in their credit history and hence the impact."

Concessions are also available to the customer in terms of payment. BNPL has also benefited from the complicated process of loan from banks and reduction in credit limit at the time of covid. The big reason behind the rapid expansion of Buy Now Pay Later is also its availability to the common customers.

Future with BNPL

The BNPL market in future is expected to reach USD 20.4 billion by 2028 and over USD 1 trillion in annual gross merchandise volume (GMV) by 2025 globally. The Indian BNPL market already exists with the size of Rs 22,500 crore.

BNPL can possibly make credit standard in a credit business sector like India. Here are the experts' opinions on it:

"I think in the future, it is going to expand the formal credit base. However, what is required is the right visibility and appropriate education for the consumer to appreciate the impact of this facility. Most consumers still don’t understand that BNPL is a line of credit. This education has to be more academic and knowledge-centric rather than technology-driven. The facility has an incredible scope to bring in more people to the formal credit system." ~ Kunal Jhunjhunwala, founder & MD, Airpay.

"India is massively under penetrated as far as credit goes. In a country of almost 1.4 billion people, as many as 191 million people over the age of 15 were unbanked as of 2018, and this has not significantly changed over the recent few years. There are limitations in terms of access to credit for the unbanked Indian population and the new-to-credit population, especially the youth. Additionally, the tedious application process for credit cards, right from submitting supporting documents, linking Aadhaar cards, filling application forms, etc., adds to the woes of young Indians who demand a hassle-free and quick experience. This has led to an increased demand from consumers for convenient and quick payment options like Buy Now Pay Later (BNPL)." ~ Anup Agarwal, Business Head, LazyPay.