Know All about BNPL

As per the RBI May 2022 report, banks have issued 92.33 crore debit cards in India, whereas the number of credit cards issued is just 7.68 crores. Due to the low penetration of credit cards, many customers are not able to buy products and services on short-term credit. Buy Now, Pay Later (BNPL) products are solving this challenge by enabling customers to avail products and services on credit without credit cards. Let us start by understanding what BNPL is.

What is BNPL?

Buy Now, Pay Later (BNPL) is a financial product that enables customers to buy products and/or services on a short-term credit period. The BNPL provider offers a certain credit limit to the customer which they can use to buy products and services. There is a billing cycle of 15 to 30 days that is followed.

At the end of the billing cycle, the BNPL service provider raises the bill on the customer for all the purchases made during the cycle. The customer has to pay the bill amount within a specified timeline, which can be 20 days or higher. The customer can choose to pay the bill amount fully (single payment) or in EMIs (usually 3 to 36 months), depending on the EMI period offered by the service provider.

If the customer fails to pay the bill amount at the end of the specified period, they have to pay various charges such as late payment charges, interest, etc.

Features and benefits of BNPL

Some of the features and benefits of BNPL include the following:

1. Credit line without a credit score: Many people don’t get access to a credit card due to no or low credit score. However, BNPL gives you access to a credit line without a credit score.
2. Convenience: It gives you the convenience of shopping online and offline through the specified period (usually a month) and making a single payment for the consolidated bill.
3. Zero or low processing fees: BNPL service providers either don’t have any processing fees for purchase transactions or have low processing fees.
4. Free credit period: You can enjoy a free credit period for your purchases. The free credit period may vary from 15 to 50 days, depending on the BNPL service provider.
5. EMI repayment option: Most BNPL service providers allow you to make a lump sum repayment or EMI repayments. Usually, the EMI options include 3, 6, 9, and 12-month EMIs. Some BNPL service providers also offer no-cost EMI for specific products or specific merchants or specific duration.

(Source: https://www.freecharge.in/paylater)

The above image is an example of features offered by Freecharge Pay Later.

How does BNPL work?

To understand how BNPL works, let us take the example of Amazon Pay Later (BNPL from Amazon). For example, Ajay has availed of the Amazon Pay Later facility. He has been offered a credit limit of Rs. 15,000. Ajay can use this up to Rs. 15,000 credit limit for purchases on the Amazon India website or app.

For purchases made between the 1^st and 15^th of the month, Ajay will have to make the repayment on the 5^th of the next month. At the time of purchase, Ajay will have to specify whether he will make a single payment for the purchase or pay through EMIs. If Ajay chooses the EMI payment option, he will have to choose from 3, 6, 9, or 12-month EMI options.

Between the 1^st and 15^th of the month, Ajay spends Rs. 1,000 on utility bill payments, Rs. 4,000 on grocery purchases, and Rs. 2,000 garment purchases. So, the total spending is Rs. 7,000. On the 5^th of the next month, Ajay’s bank account will be automatically debited for Rs. 7,000.

What are the eligibility criteria and registration procedures for BNPL?

Eligibility criteria

The eligibility criteria for BNPL will differ across various service providers. Usually, the eligibility criteria include the following:

1. Should be a resident of India
2. Should be at least the specified age. For example, for ZestMoney, the individual should be at least 20 years old, whereas for Amazon Pay Later, the individual should be 23 years of age or above.
3. Should have an account with the service provider. For example, to avail of the Amazon Pay Later service, you need to have an account with Amazon. Similarly, to avail of the Flipkart Pay Later service, you need to have an account with Flipkart.
4. Should have the KYC documents such as identity proof and address proof
5. Should have a bank account. It is required for auto-debit of the bill amount.

Registration

The registration process involves the following steps:

1. Entering your personal details for account opening
2. Completing the KYC procedure by entering your identity proof and address proof details
3. Linking your bank account for the auto-debit of bill amount

(Source: https://www.flipkart.com/flipkart-pay-later-store)

The above image is an example of the steps involved in Flipkart Pay Later registration.

Credit limit

The credit limit assigned to you will depend on factors such as whether you are salary or self-employed, monthly income, and other data points. For example, if you are availing of the Flipkart Pay Later facility, Flipkart will consider your past shopping history with Flipkart to arrive at the credit limit.

The credit limit usually starts from Rs. 15,000. Depending on your usage and repayment track record, the credit limit will be revised from time to time. For example, with ZestMoney, the maximum limit can go up to Rs. 2.5 lakhs.

Delayed repayments

While BNPL provides many benefits, it is important for a customer to understand that if they don’t repay the outstanding amount on the due date, there will be a late payment fee. It is charged in the form of a fixed amount, percentage of outstanding, or a combination.

Amazon Pay late payment fee

(Source: https://www.amazon.in/gp/help/customer/display.html?nodeId=GJ626ASQQ6PD2KZY)

The above image is an example of the late payment fee charged by Amazon Pay Later if the customer doesn’t pay the outstanding amount on time.

Who all are offering BNPL service in India?

In India, BNPL service is being offered by banks, wallets, fintechs, marketplaces, etc. Some of these include:

(Source: https://www.kenresearch.com/blog/2022/02/india-buy-now-pay-later-market-growth-rate/)

Differences between credit cards and BNPL

Some of the differences between credit cards and BNPL include the following:

BNPL is useful for people who don’t have credit cards

Credit cards provide many benefits but are accessible to very few people, as we have seen at the start of the article. For all other people, BNPL is easily accessible without needing a credit score. BNPL provides access to interest-free credit with convenience. BNPL providers also give discounts and cashback offers to users from time to time. BNPL also provides convenient EMI repayment options. Overall, BNPL is a good product, provided the customer always repays the monthly bill or EMIs on time.

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