The world is moving towards a digital economy and India is among the pioneers in this race. The digital India vision of the government, demonetization, and the recent pandemic are contributing factors in moving India at a fast paced towards the digital economy. This has given rise to many fintech solutions that have managed to reach every corner of the country. BNPL is one of the many fintech solutions offered to customers to meet their needs and is gaining huge popularity among the younger generation.
Given below is the meaning and the related details of BNPL.
What is BNPL?
Let us start with the basic meaning of BNPL schemes. BNPL refers to ‘Buy Now Pay Later‘ and as the name suggests, it is a form of financial avenue that lets customers purchase something now and pay for it later.
The BNPL provider pays for the purchased item immediately on behalf of the customer and the customer in turn has to repay the BNPL provider with an interest free period of 3 or more instalments depending on the guidelines of the BNPL provider and the arrangement between them and the customer. It is an attractive payment option for young new to credit customers who may not have credit cards or debit cards and require easy access to funds for small purchases. BNPL credit is an interest free option and hence is attracting even customers who have access to dedicated credit lines.
The BNPL provider requires the customer to complete the necessary KYC on their portal and determine the creditworthiness of the customer based on the analysis of their purchasing and repayment pattern. The credit line offered by most portals ranges from Rs. 500 to Rs. 30,000 (or more) and a credit period of 15 days to 120 days approximately depending on their individual guidelines.
Some of the popular BNPL providers include Amazon Pay, Flipkart, HDFC Bank ICICI Bank, Kissht, Simpl, ZestMoney, Moneytap, LazyPay, PayTm, PhonePe, etc.
What are the advantages of BNPL?
Some of the advantages of the BNPL schemes that make it lucrative to the masses are highlighted below.
- BNPL allows customers access to instant credit lines, especially new customers with virtually no credit history.
- Customers can choose from the multiple flexible repayment options to suit individual payment patterns
- BNPL portals have helped to increase the affordability for customers
- Safety and security of transactions as well as transparency of transactions due to the technologically advanced fintech portals makes it more attractive for the techno savvy customers of today thereby providing a smooth and hassle-free experience.
- BNPL portals also help in building a sound credit history of the customer without the need for a credit card based on their transactions and repayment history with the portal.
What are the risks in BNPL?
Like any other technological advancement, BNPL also has its own share of risks and limitations. Some of such risks are highlighted below.
- Like any other credit line, a delay or default in repayments to the BNPL provider will damage the credit report and credit score of the customer.
- There can be an increase in the impulsive buying behaviour of the customers owing to the interest free credit line offered by the BNPL provider.
- BNPLs are relatively new to the markets, hence, they are not regularised under a centralized system where there is a structured pattern for late payments, credit period and credit line offered based on stricter parameters, etc.
- Some of the BNPL schemes are loans taken on the name of the user without the user realising the same.
What are the important points to consider before opting for BNPL?
BNPL is fast changing the consumption patterns of the millennials and is gradually increasing its presence in the credit markets. However, before opting for the BNPL credit line, there are a few pointers that need to be considered which are highlighted below.
- Credit limit offered
The credit limit offered by BNPL portals is good but not as much as that offered on credit cards. Therefore, customers looking for a higher credit limit may not find it suitable.
- Interest rate available
The interest rate can be fixed for all types of purchases or can fluctuate depending on the transaction amount as per the policy of the BNPL provider. Therefore, the interest rate policy offered by the BNPL providers should be reviewed before opting it.
- Repayment options available
Another important aspect to be considered is the repayment policy offered by the BNPL provider. The customer needs to understand if prepayment or part payment options are available on the outstanding amount and if so are there any charges levied on the same.
- Access to multiple vendors or merchants
The success of the BNPL provider is measured in its reach not only from the customer point of view but also from the merchants. A customer will definitely prefer to opt for a BNPL provider that has maximum merchants accessibility whether through online or offline modes.
Conclusion
BNPL schemes are here to stay and fast becoming one of the strong segments of lending. The ease of access to immediate funds and the ability to have a credit line without any previous credit history makes BNPL an attractive option for today’s generation. Also the interest rate on BNPL portals is lower than that on credit cards which is a further advantage for millennials. But this option should be used with caution as it is easy to fall in a debt trap just like the perils of having a credit card.
FAQs
he average interest rate offered by BNPL providers is different based on their individual guidelines and is approximately around 30% on the upper band.
BNPL offers a stipulated credit line to the customers based on their individual creditworthiness so in a way BNPL can be considered as a way of getting an unsecured personal loan.
Yes. BNPL providers provide the option to pay the amount due in full or in EMIs that may or may not carry interest depending on their guidelines.
Yes. A default or delay in repayment of dues to the BNPL provider will have an adverse impact on the customer’s credit score and their credit report.
