‘Buy now pay later’ is big draw for India’s Gen Z

The use of the ‘buy now pay later’ (BNPL) facility, which allows customers to turn purchases into EMIs, is growing fast across the country as consumers find the instrument not only convenient but also affordable.

Pine Labs, the country’s largest BNPL EMI platform, has seen 60-70 per cent greater demand compared to January 2020. Similarly, ZestMoney has seen demand touching 140 per cent of pre-Covid levels.

While players say BNPL demand has been growing over the last two-three years, the pandemic, which led to job losses and salary cuts for many, has made it more attractive, as it enhances the affordability of a product. It is also more hassle-free than taking a bank EMI or personal loan, as there is no paperwork. Often, zero EMI is offered, usually subsidised by the merchant or retailer.

BNPL is often taken by the young or new-to-credit population, many of whom do not have a credit card. Known as point-of-sale loans, a large number of digital lenders are also popularising the facility. Some players say that even older people are taking the BNPL option now, but use it lesser as they also have other credit options.

“Among millennials who are entering a stage of life where big-ticket purchases are becoming more relevant, many are choosing to use credit options at the checkout counter,” said MoneyTap, which recently launched BNPL solutions.

“This has been a tough year due to the pandemic,” noted Nitish Asthana, President and COO, Pine Labs, adding that BNPL is very popular among the younger population of millennials and Gen Z.

Lizzie Chapman, co-founder and CEO, ZestMoney, which is an AI-driven EMI financing and BNPL platform, said BNPL is being seen as a good alternative to a credit card. “There’s about 3 crore unique credit card customers in India, which is a phenomenally low number. If you compare it to bank account penetration, there’s clearly a supply and demand problem when it comes to credit cards in India,” she noted.

A large number of banks, too, offer BNPL. Two years ago, ICICI Bank introduced ‘PayLater’, an instant digital credit facility for small payments to ‘new-to-credit’ customers. “The proposition was based on two insights: One, many customers, who have not taken any credit so far and do not have a credit history, are looking for short-term credit. Two, millions of young Indians are now buying products online,” said Bijith Bhaskar, Head - Digital Channels and Partnership, ICICI Bank, adding that the bank’s entire base of savings and salary account holders is eligible for the facility depending on the various checks and credit assessments based on algorithms.

ZestMoney’s annual BNPL report revealed that categories like edtech, high-end smartphones, large appliances, electric vehicles, fashion, and travel were most sought after by customers. A recent report by Mswipe showed that BNPL, which hitherto was mostly used for the purchase of smartphones, has made inroads in newer categories such as musical instruments, mechanisation of kitchen and even use of hair treatment products in a stay-at-home, work-from-home scenario.

Low defaults

There is no industry level data for the sector but most say stress levels and defaults remain low. For ZestMoney, the average ticket size per transaction is ₹12,000 but Chapman said most consumers use the facility at least three-four times a year. “Default level is very low single digits. We are in line with credit cards,” she said.

The trend seems to be growing. Recently, Mobikwik announced a partnership with Home Credit India to launch ‘Home Credit Money’ which, among other features, allows users to avail instant interest-free loans ranging from ₹1,500 to ₹10,000 directly into their wallets.

According to Asthana, there are over nine crore savings accounts with Pine Labs’ partner banks that have also been allocated these BNPL limits. The trend, going forward, will be on how to increase the penetration of BNPL from credit cards to broader account holders, he added.