With heavy reliance on online shopping in the pandemic era, the payments landscape is continuously expanding, as existing players find new solutions for customer engagement and service offerings.
Speed, convenience, seamless, and affordable are some of the requirements and expectations of today’s end-users. Globally, there is a growing reluctance towards physical credit cards among the millennials and Gen Zers, which comprises the digital native population with intent and purchasing power.
Chief among the various innovative ways in which these customers are now being serviced is the BNPL (Buy Now Pay Later) offering. BNPL is unique as it is a credit instrument with a CX of a payment instrument. This latest solution in the fintech landscape has been designed keeping in mind the needs of today’s young shoppers.
Revolutionizing The Global Retail Sector
BNPL is gaining traction globally. This is a new and improved avatar of the decades-old concept of 0% finance offered for big-ticket purchases. The latest service offers all the benefits, without the heavy paperwork and lengthy process accompanying the earlier version of interest-free EMIs for buying consumer durables.
The economic fallout due to the pandemic in the past year has impacted both consumers (borrowers) and financial institutions (lenders). With liquidity being impacted due to job losses and salary cuts, consumers are looking for affordable ways to make payments. On the other hand, massive losses on loans have caused large financial institutions to become risk-averse. Around a third of US-based millennials said in an October 2020 survey by Bankrate that they’ve been rejected for credit cards and other financial products.
Against this backdrop, fintech companies are offering a way forward, allowing customers to distribute large expenses into smaller, and mostly no-cost EMIs. This line of credit can be used to shop across segments and isn’t restricted to consumer durables.
Given the ease of using this facility, the uptake of BNPL is also seen among the new to credit and credit-averse population. The global BNPL industry is expected to record $680 billion in transaction volumes by 2025.
BNPL – The Global Trend
BNPL has helped retailers and brands attract younger customers, as it significantly boosts their purchasing power. Nearly 50% of respondents of a December 2020 consumer spending survey by Cardify said they spend anywhere between 10% and 40% more when shopping with a BNPL plan than with any other form of financing. BNPL has also helped retailers increase average order value and conversions at the point of sale. More shoppers are feeling equipped to upgrade their purchases, which is resulting in a win-win for the consumer and the retailer.
High transparency and control over spending also act as key motivators. According to a study by PYMNTS.com and PayPal, 41.8% of millennials cited clarity of fees and interest rates as the major reason for using BNPL, while 39.1% cited the ability to monitor spending.
Brands like Macy’s, GameStop, and Gap have partnered with fintech apps and leveraged BNPL to boost their sales during the US holiday season. Younger shoppers and their distaste for other credit options have also been a major factor driving this trend.
A similar trend is seen in India. Even pre-pandemic, there were merely 41 million credit cards in circulation in 2018, versus 980 million debit cards. Cut to 2020, the use of credit cards had risen only marginally to 59.4 million, as per data released by the Reserve Bank of India. Given that India is home to one of the largest youth populations in the world, it represents a huge market for the BNPL industry.
The Penetration Of BNPL Platforms In India
BNPL is the fastest-growing e-commerce payment method in India, expected to grab a 9% market share by 2024. BNPL payments could be the next financial revolution in the country. India’s BNPL industry is projected to grow by 65.5% to $11.57 billion in 2021.
What drives the BNPL story in India?
Let’s look at this from two perspectives – the customer and the mode of payment.
A Huge Demography Of Millennials And Gen Zers
India is one of the most dynamic and fastest emerging e-commerce markets, with huge untapped potential. Both urban and rural areas are rapidly integrating the internet into their daily lives, and smartphone penetration is high and rising. Against this backdrop, mobile commerce is expected to deliver a CAGR of 20.1% to become a $62.7 billion market by 2023. It was not surprising to see online grocery shopping grow by 76% to record sales of ₹22,500 crores in 2020.
The Suspension of Cash on Delivery
In April 2020, leading online retailers, including Amazon and Flipkart, announced the suspension of the most popular payment method in India – cash on delivery. This measure had to be adopted to achieve contactless delivery amid social distancing norms amid the pandemic. Although the COD facility was resumed after a few months, its percentage as part of total online spends fell from 70% some years back to 60%. As shoppers became wary of the threat of infections transmitting on surfaces, they looked for alternative payment methods. However, they also wanted to receive and trial the products before paying for the purchase. BNPL allowed them to do this.
The modern consumer is seeking pocket-friendly short-term credit solutions which are digitally available. As a result, Fintechs are building mobile lending platforms with a single-click checkout feature for such consumers. Powered by the needs and wants of the digital native generation, technological innovations like BNPL will play a key role in driving the evolution of the credit and payments space.