How The BNPL Industry Will Shape Up In 2023

At least in the Indian context, it wouldn’t be a stretch to say that 2022 was truly the year of buy now pay later (BNPL). According to data analytics firm Experian, BNPL transactions in the country surged by 21% in H1 2022. Significantly, that’s 3% more than the global growth rate. 

Its massive growth can, in part, be attributed to its convenience and ease, and to the fact that it’s cleverly aimed at millennials and Gen Z who don’t have credit cards and credit history. 

However, that’s not to say that it’s been a smooth road for BNPL all along. Easy credit when combined with the popularity of ecommerce creates a heady cocktail that can push thousands of Indians into a never-ending debt trap. This, coupled with several reports of scams and harassment by digital lenders led the Reserve Bank of India (RBI) to crack down on BNPL providers back in June-July last year. 

Nevertheless, the BNPL industry held its own through the ups and downs, with all indications pointing to continued growth in 2023. 

Here’s what I think the coming year has in store for BNPL: 

The Build Will Trump The Buy 

Lenders and platforms will move away from simply purchasing a BNPL solution to either building one themselves from the ground up or collaborating with an infrastructure provider for a white-labelled product. We’ve already seen the beginnings of this trend in 2022. In July, Deutsche Bank announced that it would be developing its own BNPL solution in collaboration with Vienna-based fintech Credi2. 

It’s easy to see the reason behind this pivot. Building from the ground up allows the lender/platform greater flexibility in terms of customisation and makes it easier for them to offer newer, more complex financial products in the future.

B2B BNPL Will Have Its Moment In The Sun 

BNPL has, up until now, been most popular in the B2C segment, with several B2C ecommerce sites offering BNPL at checkout for everything from electronics to makeup. However, the B2B space has remained largely untapped. However, I predict this will change in the coming year. 

Fintechs offering short-term financing to businesses have been the blue-eyed boys for investors in the recent past. Perhaps because the B2B market is touted to be 5 times the size of B2C, and transaction volumes are usually much higher in the former. 

However, providers will have to work out a solution to high processing fees that can be a roadblock to small businesses leveraging BNPL. 

MSME Access To Credit Will Improve 

According to the World Bank, the credit gap for MSMEs in India stands at $380 Bn. BNPL aimed at small businesses has played a major role in narrowing this gap — and will continue to do so in the coming year. 

When a business pays for an online transaction through BNPL, it can repay the amount over a flexible schedule. This allows them to navigate unpredictable demand and working capital needs. BNPL solutions also leverage alternate data to underwrite borrowers, thereby also covering businesses that have no previous credit history. 

Several fintechs have launched MSME-focused BNPL solutions in the last couple of years, and I don’t see this trend dying down anytime soon. 

Multi-Credit Options Will Grow 

Several BNPL providers will add more products to their repertoire. This will not only give consumers more choice when it comes to credit but also makes sound business sense. First, new products open up new revenue streams. Second, several fintechs had to shut shop when the earlier mentioned RBI BNPL guidelines came into effect. 

By offering multiple products, businesses can remain up and running even in case of a regulatory crackdown on one. 

Perceptions Will Evolve 

When it first came into the scene, BNPL was considered a credit product,  a loan of sorts, which it is. Individuals leveraged the option to make one-off, expensive purchases, such as furniture or electronics. 

However, now, it’s being used for clothes, makeup, small household items, and even groceries! It’s almost as though it’s now considered just another payment method — one that is particularly useful for expense management during the end-of-the-month pocket pinch. 

Conclusion 

Even with its hiccups, it’s clear that BNPL is here to stay. Especially for businesses, it’s levelled the playing field for those who have traditionally been left out of the ambit of formal credit. For platforms and lenders, it promises to become the key lever for revenue generation, customer experience, and retention. 

Most importantly, it will continue to play a starring role in India’s financial inclusion journey. From making big-ticket purchases available to those who would otherwise be unable to afford that new fridge or sofa, to enabling small businesses to ease cash flow woes, BNPL has been key to improving credit access and business outcomes.