The Evolution of Buy Now Pay Later

 

A sort of short-term financing known as "Buy Now, Pay Later" (BNPL) enables you to make payments in installments before the end of the designated time frame for making purchases. Customers in India have access to BNPL capabilities through a large number of fintech companies and online retailers as a practical payment option that works well in place of credit cards. With its transparent nature, accessibility, and free EMIs, BNPL is poised to revolutionize the loan industry.

What is Buy Now, Pay Later?

The option to pay in installments for a transaction you're about to make—usually online—is known as "buy now, pay later." Typically, the offer originates from an external organization. Let's say you intend to purchase a Peloton cycle that you intend to ride more than once a month. If you choose to pay for it over time in installments, Affirm, a third-party company, will finance your purchase rather than Peloton.

 

Credit card firms have also jumped on board, providing cardholders with the option to pay back their debt in installments for a fixed price as opposed to incurring interest on a revolving balance.

Both buyers and sellers may benefit from these agreements. The option to pay in installments can increase a buyer's perceived value of a purchase and increase revenue for the sellers. However, it might not always be a good idea to take advantage of BNPL offers, particularly if they push you to spend more than you can afford.

Key Takeaways

1)  In buy now, pay later (BNPL) arrangements, merchants pay fees to boost sales and transfer credit risk to BNPL platforms, while customers make interest-free installment payments that are normally not reported to credit bureaus. 

2)  BNPL is more common in nations with higher rates of e-commerce, higher inflation, more inefficient banking systems, and laxer financial and consumer protection regulations.

3)  BNPL users are generally younger, less educated, more indebted, and have lower credit scores and higher delinquency rates than those using traditional consumer credit.

How does Buy Now, Pay Later work?

Customers can use the "buy now, pay later" payment method to buy products now and pay for them later, usually within a predetermined window of time. Online merchants frequently employ this kind of payment method, which is comparable to layaway. 

Customers typically use the "buy now, pay later" option when checking out. After that, an invoice with a deadline for payment is given to them. Clients risk incurring late penalties if they fail to make their payment by the deadline.

Here is a Five-Step Overview of how the BNPL Process Operates for Shops and Customers:

1. A client shops as usual and starts the payment procedure. As a consumer, you initiate the BNPL process in the same manner as you would with any other online purchase. You browse through your preferred online retailers, choose what you want, and get ready to pay. 

2. The option to purchase now and pay later is provided by the retailer's preferred BNPL vendor.

In addition to using a credit or debit card, the consumer will also have the option to pay with BNPL at checkout.

3. A soft credit check is performed on the client by the lender. The customer provides certain personal information to the BNPL lender (such as their full address or Social Security number) when they choose to pay for their purchases using BNPL. Based on the customer's credit history, the lender instantly does a soft credit check to ensure that they will eventually repay their loan. 

4. The retailer is charged a fee by the BNPL provider. A portion of the retail transaction, which is billed straight to the retailer, will be taken by the BNPL provider. The cost, which often varies from 2% to 8%, is subtracted from the amount that the merchant receives from the BNPL provider. This is comparable to the agreements held by conventional credit card firms.

5. Over time, the customer settles the amount owed. If a consumer pays off their entire balance within a limited time frame (usually 30 days), the majority of BNPL suppliers provide interest-free payments. Lenders provide a range of interest-rate-based payment plans to clients who require additional time to pay off their balance. Similar to a credit card, the quicker a customer pays off their balance, the less interest they pay overall.

Some BNPL rules of thumb:

1) Don't Take Out Too Many Loans:

According to a Consumer Reports survey, having four or more loans outstanding at once increases your chances of missing payments by double. Thus, don't take up more than one or two BNPL loans at once.

2) Examine the Small Print:

Pay attention to the terms and limitations. Verify that you are aware of the conditions of repayment, interest rates, and penalties for late payments.

3) Be Aware of Automatic Payments:

You may be obliged by certain lenders to set up automatic payments using your bank account or debit card. Check your account on the first due date if that applies to you to prevent late fines.

4) Never Use a Credit Card to Make Payments:

This is really important: Do not, under any circumstances, use a credit card to pay off your loan to avoid getting into debt.

Growth of Buy Now Pay Later (BNPL) in India

India's BNPL market is expanding at a compound annual growth rate (CAGR) of more than 300%. Numerous factors are contributing to this increase, such as the expanding acceptance of e-commerce, the increasing use of cell phones, and the growing need for accessible credit choices.

ZestMoney is mostly regarded as the first BNPL (Buy Now, Pay Later) enterprise in India. ZestMoney, which was established in 2015, was among the pioneers in India to provide BNPL financing.

Other Top BNPL Suppliers in India are as follows:

a) Paytm Pay Later

b) Affirm 

c) Slice 

d) ZestMoney

e) Simpl

In conclusion

The simplicity with which Buy Now Pay Later customers can obtain credit has propelled this service into widespread use, particularly with younger populations. Fintech companies become more and more important as people continue to take advantage of all that BNPL has to offer. 

This industry is expected to grow rapidly in the next few years, and with a focus on consumer protection and regulations, it might significantly alter the way that flexible payments are provided and used.