-By Tarun Nazare

Over the last decade, India’s credit market has seen an increase in the amount of credit facility availed by customers in the form of a banking instrument popularly called as credit card. Regulated entities primarily survive by rotating money from people who have access to it to people who require them.

There has been certain innovation that has been highlighted by financial technology companies in discussion with regulated entities such as banks and NBFCs to start facilitating a credit product with a certain grace period in place for transactions of amounts below Rs 1,000 as well. The main objective of this exercise is to understand the person’s spending pattern towards a certain goods or service. The data being generated from this instrument, not only recognise the way the person spends but also understand their likeness towards a service.

BNPL has taken India by storm over the last couple of years especially with the number of companies coming up during the pandemic with a large percentage of them adopting the BNPL model over and above their current model/services.

BNPL is now allowing users to gain access to products/services which were earlier out of their reach thereby causing a similar revolution that EMI Schemes did but at a more digital scale.

The impact has been so huge that BNPL is becoming the preferred credit mode than credit cards amongst early adopters.

Let’s look at the impact of BNPL from the purview of different stakeholders:

1. Consumer

Consumer spending capacity has now increased and consumers are spending more monthly than they previously have. Further, the rewards schemes floated by most FinTechs today are driving consumers to transact more and thereby earn more rewards.

The convenience brings a change in the behaviour of that consumer and it being habitual in nature, is changing the way consumer looks at credit as a service being a lifestyle rather than a need.

This trend from the consumers will slowly reduce the dominance of current payment solution providers as a BNPL option looks cheaper prima facie.

2. FinTechs

Consumer facing companies have seen an increase in customer retention when they have facilitated BNPL as a service and various industries have taken this fintech product to attract customers. There are various names being tagged or renamed such as ‘Shop Now, Pay Later’, ‘Pay in 3’, ‘Try Now, Pay Later’, ‘Order Now, Pay Later’ and many more.

Irrespective of the industry these brands operate in, BNPL has become a product of convenience lifestyle to provide customers. Brands are able to sell more than usual hence increasing sales in their platform.

Every financial services company now wants to add BNPL to their stack to improve their user acquisition and engagement.

3. Banks/NBFCs

FinTechs have been seen as an acquiring channel of customers to serve BNPL instruments by the regulated entities.

Banks have been playing catch up with the FinTechs since the last few years and any disruptive additions in the space leads to banks following suit by either launching those services themselves or by helping companies through the back-end tech stack.

Going forward, BNPL’s form factor will expand into different modules, the introduction of BNPL cards being a direct example.

Importance to Credit Score

With credit limit ranging from as low as Rs 25,000 to as high as Rs 10,00,000 allocated to customers depending on the credit score they have in the credit card. Most of the BNPL service providers have started giving less importance to the customer’s credit score in facilitating the credit.

A new technology is in place where reading the transactions done through online spends, with the help of artificial intelligence, and machine learning has helped in decision making in providing credit limit of as low as Rs 400 to Rs 25,000 range. Petty expenses as well are being entertained with the BNPL product and now credit is not only looked at for high transaction purchases anymore.

Role of Pandemic

Pandemic has played a vital role in popularising this instrument with uncertain jobs, salary disbursement, exuberant online spends, and the flexibility of paying later…has given a push to this instrument becoming a habit forming nature. There has been a behavioural shift in the lockdown period which will continue in this decade as well.

BNPL has now become an important part enabling a convenient lifestyle for most Indians.   

(Tarun Nazare is the Co-Founder & CEO of Neokred.)