Bengaluru, June 16
Indian ‘Buy Now Pay Later’ (BNPL) companies are set to see a squeeze in margins as a result of increasing funding costs brought on by rising interest rates. Adding to the woe is reduced spending by consumers as rising inflation has hit household budgets.
BNPL is primarily a micro-credit option that helps customers to buy now and pay in monthly instalments with little to no interest. Even though a large section of the population has bank accounts, credit cards usage is estimated at only 62 million cards. BNPL players were catering to the huge lending gap in the country, and had taken off specially during the pandemic.
However, rising cost of funds for BNPL players and cut down in spending by consumers, have started impacting the BNPL sector. Reports suggest that the current BNPL market in India is estimated at $3-3.5 billion, with more than 50 companies functioning in the market.
For Snapmint, a Mumbai-based BNPL platform, the cost of debt will go up by 100-150 basis points. Abhineet Sawa, Co-founder, Snapmint, said: “With increasing cost of debt, we also see some partner merchants tightening market spend, thus not increasing much traffic.”
Interest rates have started moving up, following the recent volley of repo rate hikes by the Reserve Bank of India (RBI). A month ago, the central bank hiked the repo rate by 0.50 per cent to 4.90 per cent. The move was made to ease the rising inflation in the country.
Nitin Gupta, Founder and Chief Executive Officer (CEO), Uni cards, said rise in interest rates and reduced spending will affect the margins of BNPL players. “Margins will squeeze and will have an impact on the business sooner or later,” he added.
High inflation will have an impact on discretionary spending, which is generally BNPL product support. Onboarding of new users will slow down and growth in AUM will stagnate, said Ankur Bansal, Co-founder and Director of venture-debt firm, BlackSoil.
A report by Deloitte showed that there has been an 18 per cent decrease in both discretionary and non-discretionary spending by Indian consumers. This decrease suggests a change in consumer behavior, as consumers prepare themselves for possibilities of financial instability in the future.
“Given that the interest cost for BNPL companies is bound to increase, they will need to tweak their product offering to maintain their profit margins,” Bansal added.
Recently, slice, a BNPL player, restricted its ‘Pay-in-3’ feature to select card customers, indicating that the growth environment has become tougher. Globally, too, interest rates are on a rise and, as a result, the shares of some of the biggest BNPL players such as Affirm Holdings and Block have dipped more than 40 per cent.
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