Is 'buy now pay later' a bane or boon? Users and experts opine

BNPL or buy now pay later is a payment option that allows the buyer to purchase an item without immediately paying from her pocket. This can be done by signing up with a company providing this facility, who makes the payment on behalf of the buyer. The customer can then repay the amount to the company within a stipulated period.

For some of the users BusinessToday.In spoke to, this is a fantastic option but some opined that BNPL is nothing much different from a credit card, as in, in the end, both build credit.

However, early-stage venture capital fund Rocketship.vc believes that BNPL makes buying more convenient and is here to stay and change the fintech ecosystem.

What users say

For Vipul Agarwal who works at a Chicago-based CSR company with operations in India, there are no cons to BNPL. “The fact that you can pay you can pay your bill at the end of three months, instead of every month, the ability to get gift cards for companies such as Amazon, MakeMyTrip etc, and the ease of repayments and spend tracking are all pros of using BNPL services,” he said.

But Rohit Nair, who works at a Delhi-based media company, is not very taken by the concept. “What BNPL does is it trades off future security for instant gratification. If you are using BNPL it indicates that you don’t have the means to buy something right now but hope that tomorrow, you might. But there is no guarantee. So, it is sort of a debt trap, where your interests are likely to accrue. Moreover, to get the full benefits of BNPL, one needs immense financial discipline, but few young buyers have that much financial discipline,” he said.

Sailesh Ramakrishnan, Partner, Rocketship.vc believes that BNPL is not a fad but a key aspect of e-commerce. “We believe that credit is an important aspect for the development of a rapidly growing economy and BNPL is a specialised form of credit. While India has historically had the concept of instalment plans etc, BNPL brings that convenience right to the point of sale,” he added.

Will BNPL change the fintech ecosystem?

Ramakrishnan explained that one of the biggest reasons why consumers abandon shopping carts is because they feel they cannot afford the final sticker price. “BNPL allows consumers at that final step to consider a much more affordable way of making the purchase happen. Retailers can incentivise this to help consummate the sale as some even offer 0 per cent interest,” he added.

BNPL is then a significant win-win for both consumers and retailers, he said. Ramakrishnan said that they expect BNPL to expand to offline commerce too with stores offering BNPL options with a much smaller initial cash requirement.  

Rocketship.vc is also aiming to identify and invest in BNPL companies for B2B. “Businesses also buy many things they need and require similar credit support and they are much better to assess risk around as compared to an individual,” he said, further adding, that specific verticals such as jewellery financing and cars also present ample opportunity for BNPL.

BNPL risks

From the companies’ perspective, they have to very quickly make a risk assessment and price the offer correctly as BNPL ultimately works at the point of sale, said Ramakrishnan. “However, they need to do this without significantly inconveniencing the customer by asking them to fill forms or require significantly more information. So, risk modelling is the key. As with anything new, consumers might behave a bit irrationally and this might lead to initially higher default rates,” he added.

A BNPL company must keep in mind two important factors – the risk model and the cost of capital. “The BNPL solution and its internal risk model need to be customised to the use case (different models for BNPL for grocery versus a car). Companies also need to eventually develop their own capital sources so that the cost of capital does not become prohibitive for them,” Ramakrishnan elaborated.

Rise of BNPL

The concept of BNPL received greater traction amid the pandemic. Buyers preferred to break down big-ticket expenses into smaller interest-free EMIs. Companies also lapped up the demand and ensured that BNPL loans are sanctioned easily, which is also a reason for its popularity. But one must keep in mind that these loans must be paid within the stipulated time to maintain a healthy credit score.

LazyPay, Simpl, ZestMoney, Amazon Pay Later, Slice, Paytm Postpaid, Ola Money Postpaid are a few companies offering BNPL services in India.