‘Buy Now Pay Now’ seems quite old-school when one can ‘Buy Now Pay Later’ (BNPL). Retailers and payment firms are sweetening the deal for young shoppers and cash-strapped millennials with an incredibly attractive and affordable proposition that lets them enjoy instant gratification without the burden of upfront payment.

What’s new, when credit cards do exactly that, one may ask. Well, what’s new is the fact that the BNPL facility is flexible, interest-free, easy to use, and with low entry barriers, as opposed to credit cards that come with a range of riders and recurring costs.

BNPL is not only attractive for consumers but is also proving to be a lucrative strategy for players in the retail and fintech space. Ecommerce firms, retailers, banks and payment services firms are queueing up to gain a definite edge over competition by offering a convenient credit option to consumers minus the hassles of credit cards.

Ecommerce players like Amazon and Flipkart, homegrown payment service providers like BharatPe, and fintech firms like MobiKwik have jumped on the BNPL bandwagon in the last couple of years. Banks such as Axis Bank and ICICI Bank too are taking the BNPL route to grow their customer base.

While Flipkart has the Flipkart Advanz BNPL subsidiary, Amazon has partnered with the NBFC Capital Float. Paytm offers BNPL through its tie-up with Aditya Birla Finance. Byju’s and Unacademy, in the education space, have partnered with LazyPay and Capital Float, respectively.

And more players are set to join the fray in the coming months.

Growing segment

Though it’s still early days for the segment, BNPL is fast emerging as a revenue driver, propelling transactions, average ticket size and repeat rates across several product categories. BNPL is also seeing a steady increase in customer acquisition.

Industry players in India estimate that there has been a 45X growth in BNPL transactions in the last two years. According to MobiKwik, income from the BNPL segment accounted for nearly a fifth of its revenue of 3.02 billion rupees for the financial year ending March 31, 2021.

Bengaluru-based fintech startup Simpl had disbursed over 49 million loans in the BNPL space, as of November 2021. The company recently raised $40 million in funding.

In a little over a year since its launch in April 2020, Amazon had 2 million users signing up for its Pay Later facility.

Pent-up demand

Much of this growth can be attributed to the pent-up demand that has been created in the last couple of years, with shoppers having to tighten their purse strings in the immediate wake of the Covid-19 pandemic.

Revenge shopping has contributed greatly to the growth in BNPL, with Covid-fatigued consumers breaking to the shackles and spending freely and spending big. This was especially observed in the festive season of 2021 when many consumers turned to installment plans from retailers like Amazon, Flipkart and Paytm and consumer lending fintech firms like Simpl, ZestMoney, CASHe, LazyPay and ePayLater.

For BNPL firm CASHe, the festive season spurred a 25-30% uptick in demand in the BNPL segment, over the previous year. Flipkart reported that over 1 million customers opted for its Flipkart Pay Later facility during the Billion Big Days sale for purchases in categories such as lifestyle, grocery, home and general merchandise.

Easy and hassle-free

Ease of access and lack of a formal credit line are other reasons why the BNPL has found favor among consumers. While a credit card require a certain income threshold, consumers can get access to the BNPL facility fairly easily with a one-step process. Those who own credit cards are also opting for BNPL, as it offers them an additional line of credit, even for low-priced items.

BNPL not only lets customers defer payment over a period of time, it also lets them break it down into smaller, manageable installments. In uncertain times such as these, this comes as a big boon to young millennials and Gen Z shoppers, many of whom do not possess credit cards or a credit history.

Cashing in on an underserved market

Growing awareness of financial inclusion, financial literacy and growing digital economy will propel the adoption of the BNPL credit facility in the near future.

Access to credit remains an unmet need for many Indian consumers who want to fulfil their aspirations and also manage their expenses wisely. Given that over 90 of India is credit unserved or underserved, there is a pressing need for alternative forms of credit.

In such a scenario, the BNPL model could present interesting market opportunities for retailers and fintech firms.

The BNPL model is already turning out to be a popular source of borrowing for customers who need small-sized loans quickly to tide over immediate cash crunch. Fintech firms have been witnessing a 20-30% growth in small-sized loans (less than Rs 5,000) in the last three months or so, with the market recovering from the pandemic shock. A survey by Research and Markets showed that demand for small-sized loans would increase by 66 per cent annually to $11.6 billion in 2021.

Apart from urban millennials, BNPL can also provide a viable credit option for tier-II and tier-III customers, who generally opt for COD. Now they can use the BNPL option and pay off interest-free loans at their convenience.

Future of BNPL

The thriving BNPL market is all set to boom in the next 4-5 years. According to research firm Redseer, India’s BNPL market will surge ten-fold in four years, on the back of the growing population of online shoppers. Research firms expects the market to zoom to $45-50 billion by 2026 from the current value of $3-3.5 billion. It also estimates the number of BNPL users in the country to grow to 80-100 million by 2026, from 10-15 million now.

Currently, customers have access to a maximum credit of 100,000 rupees on the BNPL platform. As this is much lower than what credit card firms offer, BNPL may not overtake the cards market any time soon. While BNPL may not entirely replace credit cards, it can certainly cause disruptive changes in the way India shops, as affordable credit gains credence and acceptance among a generally credit-averse population. A lot hinges on the way in which BNPL players engage with customers in order to entice and retain them.

Insight-led engagement with customers

Players in the space must adopt a 360-degree customer view to garner useful insights, which will help them devise a customer-led engagement strategy.

It is important for BNPL players to understand the stages in the customer’s journey and lifecycle to identify churn risk and about-to-drop-off customer segments. Data can help companies garner insights into when customers are the most active during the day, when they are likely to shop, and what their affinities and preferred communication channels are based on previous behavior.

Segmentation is the core of personalization. A sharper, clearer segmentation helps brands analyze and predict customer behavior and adopt a more pertinent communication strategy.

Insights on behavioral attributes and purchase and credit patterns (such as frequency of credit access, monetary value of credit) can help retailers and payment firms categorize customersinto different segments—frequent loanees/seasonal loanees, big-ticket/small-ticket loanees, active/inactive/dormant users, etc.

Personalise the experience

Once segmentation is done, players can target customers at the right time with personalized communication on relevant channels, using the preferred language of communication, for better engagement, retention and repeat behavior.  

For example, if a young customer is a frequent buyer of small-ticket items in the fashion category, they can be targeted with relevant communication on products from this category, at the appropriate price points. If the customer tends to buy viathe smartphone, they can be sent alerts on new releases, push notifications with product recommendations, and precise text messages on offersand discounts with the BNPL option, thus gently nudgingusersinto action.This kind of approach works better than bombarding the customer with information on high-priced items in categories they are not interested in.

A data-driven omnichannel communication strategy helps boost user reachability, click-through rates and frequency of use, reduce churn, and thereby optimize the overall performance of engagement using machine learning.

How BNPL players play the data-and-insights game will decide the course of the market and help them derive more bang for their buck in the years to come.

Raviteja Dodda

Raviteja Dodda

(The author is CEO & Co-Founder, MoEngage, a customer engagement platform)

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