SUMMARY
With the growth in ecommerce and the convenience that BNPL offers, its adoption is expected to rise steadily from 2021 to 2028, at a CAGR of 24.2%, with gross merchandise value reaching $52.8 Bn
BNPL offers a rolling credit facility, the cap of which gets reset as and when the consumer makes a repayment
Fintech companies are tying up with edtech players to offer “Study Now Pay Later” plans where fintechs are paying the cost of the course upfront, allowing students to repay the loans with zero-cost EMIs
We are standing at an exciting juncture in the world economy where the wage gap between the advanced and the emerging economies has been steadily declining. No other nation has witnessed the kind of economic spurt like India. The world’s largest democracy in terms of population has certainly made significant progress on the economic growth front in the past decade. The heads have certainly started turning and it is definitely an encouraging sign for the erstwhile third-world economy. The high inflow of FDI in fields like infrastructure is a sure sign of the resurgence of over 1.3 billion Indians and counting as a financial and economic powerhouse.
However, the disparity amongst the economic and financial segments within the country is still an unpleasant truth and casts a shadow on our otherwise remarkable success story. The standard of living in the country varies significantly from one segment of the population to another. On the one hand, India overtook Germany in April 2021 to become the country with the world’s third-highest number of billionaires. On the other hand, India is also home to a mammoth middle-class population, estimated at 66 million in 2020, and we do not really have to go down to the grass-roots, where the vast majority of the population in the category – BPL stares back at us with the reproach of not being able to pass on the benefits to those who truly matter.
Given this wide gap in financial status and access to liquidity when it is needed, the term “affordability” means different things to different people. India’s top three richest people, who added more than $100 billion among them in 2020, may worry about affordability when buying an ultra-luxury possession. In contrast, a year into the pandemic, India’s middle-class population may be wondering how to afford their next microwave, fridge, or washing machine when essential household equipment breaks down. This is where the “Buy Now Pay Later” financing model could come to the rescue and turn the tables for these growing middle-class aspirants.
BNPL: Improving Purchasing Power in India
Human tragedy apart, the onset of the pandemic was a double-edged sword for the Indian consumer. Covid-led restrictions prevented consumers from visiting physical marketplaces for their daily essentials. On the other hand, job losses and salary cuts became rampant, putting a strain on their finances and liquidity, leading to deferment of planned purchases.
Against this backdrop, Corporate India found a way. Companies offered products and services online, the logistics industry brought these to the doorstep of the customer and the payments segment developed stronger infrastructure to make the transfer of funds convenient, faster, easier, and more reliable. The logic was simple, to let consumers feel secure amidst the uncertain times and let their purchasing power remain intact despite a setback.
However, even with these benefits, the Indian consumer still faced the problem of affordability. This problem was solved by the Buy Now Pay Later option. BNPL is not merely an alternative way of shopping online. It represents a paradigm shift in the way Indians make purchasing decisions. Offering short-term small credit to the Indian consumer at minimal to zero interest, BNPL increases people’s purchasing power and makes an array of products and services affordable and accessible to them when they need it, and not the other way around.
Rather than making an upfront payment, consumers can instantly purchase products and divide payments over three, six, nine or twelve months. BNPL offers a rolling credit facility, the cap of which gets reset as and when the consumer makes a repayment.
The Indian consumer can shop for essentials, buy big-ticket items, make aspirational purchases, or a combination of all, with the BNPL facility. The fact that the credit facility is often interest-free further reduces the financial strain. It is also a lot more hassle-free than taking a personal loan as paperwork is next to negligible and mostly handled by the retailer.
Such an option comes as a boon especially for India’s urban, earning youth. This is also the segment of the population that has just begun their careers and has lower income but higher fixed expenses. Many of them are accessing credit for the first time or have no easy access to credit.
BNPL extends credit based on e-KYC and credit health checks supported by alternative data. It also eliminates wait times traditionally associated with availing of personal finance.
Especially for Millennials and Gen Z, who have the purchasing power and intent, BNPL has become the preferred payment option, as they have a high propensity for digital transactions. They can obtain quick approvals for their purchases and set their payment schedules at checkout. This supports the fast and seamless online experience that digital natives prefer.
BNPL in Different Sectors
The Ecommerce Sector
The BNPL trend started with the sale of smartphones and since has been extended to products like electronics, furniture, household items, and wellness products. The electronic segment occupied the highest market share in the e-commerce retail market during the pandemic, while home supplies accounting for the largest non-essential digital purchases.
Social distancing norms and the possibility of several COVID-19 waves in the future could continue to drive consumers from shopping malls to online portals, for basic and branded products. Goldman Sachs expects growth in online grocery in India to accelerate to an 81% CAGR between 2019 and 2024.
With the growth in e-commerce and the convenience that Buy Now Pay Later offers, the adoption of BNPL is expected to rise steadily from 2021 to 2028, at a CAGR of 24.2%, with gross merchandise value reaching $52.8 billion.
Education
Fintech companies are tying up with EdTech players to offer “Study Now Pay Later” plans. Fintechs are paying the cost of the course upfront, allowing parents of students and direct consumers of the service to repay the loans with zero-cost EMIs.
Given the rising cost of education, alternative financing options like BNPL could be a relief for Indian households, which spend a large portion of their income on children’s education. An official survey revealed that tuition fees charged by institutions account for only 57% of total education expenses in urban areas. Expenses on books, private tuitions, uniforms, transport, and other costs constitute the remaining large chunk of the whole expenditure.
BNPL solution providers are also tying up with food delivery and travel booking companies.
The Road Ahead
This year has been kinder to the Indian consumer. However, even with the average salary projected to rise by 7.3% in 2021, it remains lower than the 8.6% average recorded in 2019 pre-COVID era.
BNPL comes as a godsend for the credit-starved Indian consumer. Its ever-increasing availability as a mode of payment across various sectors will continue to facilitate the customer’s freedom and ability to maintain the same standard of living even in challenging times.
