The increasing relevance of Buy Now, Pay Later in the new world order

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The Covid-19 pandemic has brought a paradigm shift in India’s digital payments landscape, with online retail business adoption now at an all-time high. The pandemic-related shift to online shopping and digital payments has led to rise of several sub-industry opportunities, such as Buy Now Pay Later (BNPL). According to Global Payments Report by Worldpay from FIS, BNPL is emerging as the fastest growing ecommerce online payment method in India, and it’s estimated to capture 9 percent of the total ecommerce market share by 2024.

India is home to one of the world’s largest millennial and Gen-Z population, and these generations are contributing more and more to the exponential use of smartphones and digital payments in the country. Over the last year, there has been a significant uptick in the number of online shoppers, particularly in Tier 2 and 3 cities, due to increasing awareness about eCommerce and adoption of cashless payments. It’s anticipated that this growth is unlikely to ease even in the post-pandemic world. The financial markets have an opportunity to challenge the existing credit models in the economy, and change the way consumers think about credit.

The Fintech industry that has found credit gaps in the traditional BFSI segment, has come-up with numerous products in recent years to cater to for the demand for seamless credit access of the millennial and Gen-Z population. Some of India’s leading traditional banks have also stepped into the BNPL space. The recent success of BNPL is forcing several banks and retailers to make changes to their credit offerings for their customers. The banks going forward are expected to frequently engage with merchants to maintain the competitive edge in ever-changing financial markets.

BNPL is a short-term micro credit model, where consumers need to pay little to no interest for online purchases through eCommerce platforms. While this instalment-based payment option is not a new concept, BNPL offers a smooth instalment experience without the unpredictability of credit card debt. BNPL provides a seamless user experience and quick way of spending without any hefty fines for missed payment, and no extra charges for deferring payments. The economic uncertainty, job loss, and salary cuts due to the Covid -19 pandemic has brought paradigm shift for BNPL in particular.

As the digital payments landscape leaps forwards, the frameworks that govern and protect consumers and merchants must adapt to ensure that there continues to be trust and reliability in payments technologies. A regulatory framework will help reinforce the viability of BNPL and enable consumers and merchants to reap the benefits of BNPL in a safe and secure manner, while ensuring financial and social responsibility. More concrete industry guidelines will bring accountability to different aspects of the schemes, such as credit assessment, payment authorisation, marketing practices, and others.

BNPL is expected to grow exponentially in coming years. As the eCommerce landscape becomes more and more competitive, BNPL offerings will evolve to be more sophisticated as merchants will seek to differentiate themselves in the marketplace. The providers will look to build loyalty through BNPL to encourage repeated purchases with cashback or incentive programmes that reward on-time payments. We can also expect to see the BNPL space infiltrate beyond retail and consumer goods to other sectors, in particular those that have struggled during the Covid-19 pandemic.

(The author is Managing Director of Asia Pacific, Worldpay from FIS. Views expressed are personal.)