Buy Now, Pay Later or BNPL will comprise 14% of the transaction value for e-commerce companies by 2026, growing nearly 5x from 3% of such transactions in 2021, points out market research by Benori Knowledge. BNPL payment option is one of the most interesting trends to play out against the backdrop of the accelerated adoption of e-commerce platforms in India.

Gurugram-based Benori Knowledge is a new-age provider of custom research and analytic solutions across industries, including consumer & retail, technology, media & telecom, internet & e-commerce, and financial services.

The India BNPL market could become the largest in size globally and is expected to grow 10x in value over the next five years to reach $35-40 billion by 2026 from $3.5-4 billion in 2021, according to a release. India’s large youth demographic, rising consumer spending, growing preference for online channels and electronic payment methods, exponential e-commerce growth, transparency with costs and benefits, and frictionless payment experience are expected to contribute to the market growth over the forecast period.

Further, the low penetration of credit cards at just 5% is not enough to address consumer credit demand. India currently has around 22-25 million BNPL users which are estimated to reach 90-100 million by 2026.

The preference for BNPL emerges strongly in the survey conducted by Benori with over 1,000 users. An overwhelming 90% said that they are more likely to shop from stores, both offline and online that offer the BNPL option at check-out. Likewise, a majority, 75%, confirm using BNPL when shopping on e-commerce websites and apps.

The BNPL option is most commonly used to purchase electronic products (71%), followed by fashion and lifestyle accessories (67%) and commonplace, everyday shopping items (57%). BNPL’s preference is being driven by itslow or no interest rates, followed by flexibility and convenience, and non-eligibility for credit cards.

The number of BNPL users is closing the gap to the number of users using credit cards. Nearly half of the respondents claim to be using both BNPL and credit cards for payments, 45% of the respondents said that they would prefer to make their payments through BNPL, even if they own a credit card.

While the multiple benefits of BNPL are recognized by people across age groups, 60% of those more inclined to adopt BNPL fall in the GenZ and millennial categories. This points to BNPL becoming a ubiquitous mode of payment in the future as it sees increased acceptance from the young, digitally savvy segment of the population, the market research revealed.

Further, BNPL as an alternative mode of payment is adding to the spending capacity of consumers and is also encouraging overspending. A staggering 90% of the respondents said that they spent more money than they had intended because of BNPL, with 40% revealing that using BNPL caused their monthly spending to increase by 30%. In fact, this increase climbed as high as 50% for 33% of the respondents. This trend was prevalent across tier-2 and tier-3 cities as well. The survey also indicated that on average, women spent more money when using BNPL than males.

Users surveyed also expressed a preference for a credit limit of over INR 50,000 and a repayment period of 30 days, exceeding by far what is currently being offered by most BNPL providers.

Commenting on the findings, Ashish Gupta, the Co-founder and CEO of Benori, said,“While there has been a huge increase in online purchases amidst the pandemic, inflation and reduced disposable incomes led to the emergence and boom of short-term financing solutions. Both these elements propelled the growth of BNPL services in the country. While BNPL currently represents only a small share of the e-commerce spending, there are signs that there is still plenty of room for BNPL companies to grow in this segment.” Additionally, with easy access to a digitally-driven credit facility, BNPL is also addressing the gaps in the consumer credit demand that credit cards are unable to meet.

He added, “Our research findings validate this and emphasise the factors bolstering the potential of BNPL services in India. With the ever-increasing e-commerce volume, the fintech ecosystem and other growth drivers coming together, the Indian BNPL market is poised for growth by 2026.”