The meaning of Buy Now Pay Later is as simple as it sounds- You can finally buy that item in your cart that you’ve been eyeing for weeks, without having to worry about collecting the entire amount for it. But is this service actually beneficial to its consumers? Does the outstanding growth of the BNPL sector mean that people will no longer have credit cards or avail personal loans?
‘Buy Now, Pay Later’ is a financial service that has gained favour from the Indian masses, specifically the youth, in recent times. It allows people to make a purchase without paying from their own pocket, rather, the company they have decided to sign up with, pays for the commodity on their behalf, and the customer is required to pay the company back, in instalments or all at once, over a stipulated period of time. In order to avail this service, one must first register with any of the companies offering BNPL services.
Source:- https://www.pymnts.com/news/retail/2022/bnpl-boosts-paypal-and-block-as-installment-plans-weather-inflation/
Some major players offering Buy Now Pay Later services in the Indian Market are Amazon Pay Later, Simpl, ZestMoney, LazyPay, Paytm Postpaid. When making the purchase, the customer just has to opt for the ‘Buy Now Pay Later’ option and make a small down payment on the item. The remaining amount is to be paid by the customer over a specified period of time either as a whole or in instalments. BNPL can be availed not only in online stores, but it has also started gaining traction in physical stores.
The BNPL Industry has shown a strong increase in growth in the Indian Market over the last four quarters as there is an increasing inclination among people towards flexible payment methods and is predicted to grow further in the following years. Its growth in popularity can be attributed to the payment flexibility it offers. Since people prefer to pay for goods in their own time, they prefer that in order to make a purchase, the entire amount to be paid is not required at that moment, and they can break up the payment into smaller instalments.
Moreover, BNPL offers to break down the large sum into small segments without any interest charged, as long as the repayment is made within the stipulated period of time. The interest free period offered by most companies allows the customer to not have to pay any interest on the loan, as long as they pay the company back within this period. This, along with the pandemic, which led to an increased preference for online shopping and making smaller payments, are also causes for growth of BNPL Sector in India.
BNPL has offered an excellent alternative to credit cards for people who are unable to meet the eligibility criteria for availing credit card services from banks, as well as people who are looking to make smaller purchases. The interest rate is also more preferable in case of BNPL as interest is charged only when the repayment period has greatly exceeded the interest free period. Certain sections of people, like lower income and self-employed people, are generally not preferred by banks when approaching people for providing credit facilities. It is these people who are most benefited by BNPL schemes.
Source:- https://www.lithic.com/blog/bnpl-the-unbundling-of-credit-cards
But all of this comes with its own drawbacks. It is not possible to use BNPL services in order to make a big purchase, as the credit offered by the BNPL sector is generally meant for smaller purchases, i.e., the amount is usually low. In this situation, the customer must opt for credit card or personal loans in order to make the payment or postpone the purchase. Along with this, credit cards are also more likely to be accepted at all stores, i.e They are universally accepted, whereas BNPL is mostly fragmented as is seen in the case of Amazon and Flipkart, both of which offer their own BNPL services, meaning that one cannot be used to make purchases from the other. Also, missing a payment on the return of the amount can result in a late fee and more severely, one can end up overexerting their finances, by overlooking the overall costs and only considering the small interest payments.
So, while the BNPL sector is growing at exponential rates in the Indian Market, and it is generally more preferred as the primary payment choice by consumers of all age groups, it will most definitely not replace traditional credit facilities, as the lending market is too large for a single service provider.
As for whether you should opt for BNPL payment or go with your credit card, depends on your own specific situation and the decision must be made by comparing the total cost and interest charges between the two as both BNPL and credit card have their own benefits according to the situation. It is crucial for the customer to stay updated about the terms and conditions of the company they avail BNPL service from, as well as carefully consider their finances before deciding to make a purchase.
Article by- Andesha Sharma
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