Is Buy Now Pay Later Required For Your Business?
The Buy Now Pay Later (BNPL) market in India, which was steadily growing over the past 2-3 years, accelerated due to the Covid-19 pandemic. According to a 2020 BNPL survey, BNPL is slated to become the fastest growing payment method in India, rising at a CAGR of 24.2% from 2021 to 2028.
Indian players providing BNPL include Flipkart, Amazon Pay, Paytm, LazyPay, Simpl, Flexmoney, Capital Float and ZestMoney. Fintechs like KredX also offer this option to retailers to buy products/services from their clients. With this facility, KredX’s clients can grow their income considerably in the festive seasons.
What Is The Buy Now Pay Later Solution?
BNPL is a short-term finance, that allows customers to make purchases and repay later, usually without paying interest. These work as point-of-sale instalment loans allowing customers to make purchases on credit and repay the amount in instalments.
This facility allows for easier repayment compared to traditional monthly billing cycles as it spreads the payment over a longer period. In addition, customers can immediately receive their orders without paying. This is not the case for a layaway plan where the shop holds the product till the customer clears all dues.
Lenders offer sachet-sized credit through BNPL as they do not have to bear the high costs of a traditional credit card infrastructure. It also allows marketplaces to open up credit windows temporarily during festival seasons to boost sales for a short period.
It is much easier to get approval for Buy Now Pay Later than traditional credit card funds or lines of credit. However, when customers fail to repay the amount within the tenure, the lender can charge interest or penalty on the funds. Further delay in payments or failure to pay can lower one’s credit score significantly.
How Does The Buy Now Pay Later Service Work?
Each company providing BNPL services has their own terms and conditions. Usually, most of them provide interest-free credit to consumers, which they have to repay in around a month or 3-4 instalments. Here is a brief description of how the BNPL process works:
- A buyer signs up for BNPL services at checkout to shop at various brands and merchant services.
- The provider settles one’s full basket value to the merchant while the buyer agrees to make repayments within a certain time.
- The conditions for BNPL services can vary from lender to lender. The credit period can range from 30 days to 36 months. The credit amount also varies from lender to lender- For example, Flipkart offers a credit of Rs. 10,000 while ZestMoney offers personalised credit of up to Rs. 60,000.
- The consumer pays the credit in a series of interest-free instalments. However, for credit with longer tenures, a certain interest fee (usually lower than credit card interest rates) can be charged.
Differences Between BNPL And Credit Cards
Let’s look at the following table to know the differences between traditional credit cards and BNPL.
|There are no hidden charges applicable.||Credit cards often have hidden charges like cash advance charges, annual maintenance fees and GST charges.|
|BNPL comes with digital KYC and instant sign up and approval.||Credit cards require paperwork, KYC approval and weeks of waiting.|
|Designed for a bigger market, including with new or insufficient credit data.||Made for a smaller market, including those with high CIBIL scores and residing in metros.|
|BNPL charges mostly zero interest rates, except for late payments or longer tenures.||Credit cards are the most expensive form of credit, with interest rates going up to 48%.|
How Can BNPL Benefit Merchants?
The following are some of the benefits of BNPL for businesses:
- Lower transaction fees: BNPL typically charges a fixed transaction fee and a percentage of sales. This means businesses do not have to worry about lost revenue for refunds.
- Enhances client’s experience: Buy Now Pay Later services to provide a simple, quick, and frictionless payment process for clients. This seamless sales experience meets their expectations and converts them into regular customers.
- Increases the pool of customers: According to many payment solution providers, shopping carts become larger and are abandoned less often when a website offers BNPL. Thus, this service gives one access to a greater pool of customers, increasing their revenue and market.
- Better services: BNPL providers specialise in retail and are quite likely to understand the specific needs of businesses. They also take full responsibility for all lending decisions and are liable for repayments in case of defaults.
- Best for some businesses: Retailers of high-value items like furniture, electronics, appliances etc., can expand their businesses using BNPL. It makes more consumers willing to make a purchase, increasing profits.
Many Fintechs like KredX offer Buy Now Pay Later services to their clients for B2B (business to business) transactions. With this service, businesses can increase their revenue, client conversion rates, average basket values, and increase the loyalty of their clients.
Consumers love the BNPL service as it lets them pay in instalments without paying a hefty interest. They know they can get a refund if they do not like the product, and thus, window shoppers get converted to customers.