How BNPL Startups Are Disrupting India’s Lending Space, for Better or Worse

In this video, we look at the reasons for the momentous rise of BNPL startups in India and also explore if BNPL is disrupting India’s lending space for better or for worse.

00:00 What is BNPL or Buy Now, Pay Later?
02:20 What makes BNPL different from credit cards?
06:59 How do BNPL startups make money?
10:40 Problems with BNPL
14:09 Will BNPL overtake credit cards?

What is BNPL or Buy Now, Pay Later: If you’ve bought anything online recently, you might have noticed an option to buy now and pay later. It’s becoming pretty prevalent across e-commerce websites and apps, but you might even spot Buy Now, Pay Later offerings offline too at stores and malls. Normally you would have to save up – you’d have to put money away every month until you could afford that shiny new expensive thing that you want to buy, and nobody wants to do that, especially if it’s on sale right now, but maybe won’t be in a month or two. Historically, the solution to this problem was a line of credit or a credit card. But of course, in India, getting a credit card isn’t always an easy process, and once you’ve acquired one, well, then you’re being charged all kinds of fees and there are interest payments to make. That’s where Buy Now, Pay Later comes in, often shortened to just an acronym, BNPL, and BNPL startups are taking the allure of paying for things later the same way you would with a credit card, and they’re making it simple, and easy, and straightforward.

What makes BNPL different from credit cards: Conceptually, both BNPL and credit cards are very similar. The big differentiator between BNPL and credit cards is in their execution. If you’ve ever applied for a credit card, you know how difficult it is to get a credit card in India. This is why there are just 30 million credit card users in the country. BNPL startups like Slice, ZestMoney, Simpl, LazyPay, and Uni, are lowering the bars that credit card issuers have set so high. Pretty much anyone can buy now, pay later, all you need to do is provide details like your PAN and Aadhaar number. Instead of relying on credit scores, these BNPL providers use their own algorithms to determine how much credit they should give you based on your transaction history and your location, and once you’ve been a BNPL customer for some time and as long as you’ve been in good standing and you’ve paid your off your loans, they’ll increase your credit limit, too.

How do BNPL startups make money: Well, there are a couple of sources of revenue for BNPL startups. The first comes from merchants. Like credit card companies and POS providers, BNPL companies charge merchants anywhere between 2 and 8% of the purchase amount. Now, the merchant is okay with this because of the benefits that they see from partnering with the BNPL provider. Firstly, they see an increase in conversions and average transaction value, because customers that probably wouldn’t be able to afford big-ticket items in their store or marketplace now can. So basically, tying up with a BNPL company gives merchants more customers who spend more money. Their second source of revenue, much like credit card companies comes from late fees. According to BankBazaar, these fees can be a percentage ranging anywhere from 2 to 8 per cent of the principal loan amount, or they can be a flat fee.

Problems with BNPL: See, there are many Indian BNPL customers who don’t even know what a credit score is, they don’t realise that by failing to pay off their BNPL debt on time, they’re irreversibly damaging their financial identity. With a shockingly small amount of paperwork and no proof of income to speak of, you can comfortably apply for BNPL from four or five different platforms and borrow upwards of 1 lakh rupees. There are even instances of BNPL companies not doing proper KYC or credit bureau checks, they’re growing so fast that they’re unable to scale their due diligence, and there have been reports too of defaults not being reported to credit bureau agencies.

Will BNPL overtake credit cards: So, coming back to our question: will BNPL overtake credit, in terms of market adoption. Yes. That is almost a given at this point. In fact, the number of BNPL users are estimated to be 10-15 million already and are expected to grow as much as 10X to 100 million by 2026.

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