This Festive Season, BNPL could be the answer to the credit collection worries of e-commerce merchants

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Introduction

The Indian online market is growing at a steady pace, thanks to the increase in the number of internet and mobile users in India. The e-commerce market size is expected to grow at a compounded annual growth rate of 21% per annum to reach USD 170 billion by the year 2030, as stated in a report published by the brokerage firm Jeffries. According to this report, online retail, which was 25% of the aggregate organized retail in India in the year 2019, would grow to 37% by 2030.

 

Pandemic and the Trends in Online Sales

Projections aside, the current pandemic has also boosted online sales as people refrain from stepping out of their homes. As online trade is booming, online merchants record increased turnover. Online platforms offer customers a plethora of online payment options to pay for their online transactions. While credit cards have been a convenient mode of payment for customers in the absence of ready cash, credit collection is still a bone of contention for merchants. Online merchants face varying levels of impediments when it comes to credit collection, which in turn impacts their business in one or more of the following ways.

This could be in the form of delays in receiving payments or the high charges associated with credit cards. Also, there is the possibility of online fraud which discourages customers from making online payments. 

 

More than just Credit

But more than the ability to pay, it is also the convenience and the empowerment some platforms offer customers and merchants that are gaining ground. And with the festive season looking to give e-commerce the much-needed boost, it becomes all the more important for merchants to consider better, safer, and empowering payment options. Here’s a look at how Buy Now Pay Later is helping both the consumer and the merchant by easing the process and ensuring payments.

 

What is the BNPL system of payments?

The BNPL system can be likened to a traditional khata system wherein customers maintain a credit account with a merchant and then settle the dues at once. Under the BNPL system, customers are given the facility to consolidate their payments into one bill and then pay the aggregate bill once in 15 or 30 days. The BNPL system is much like a credit card but with enhanced ease of transactions and no hidden fee.

 

How BNPL is solving merchants’ collection problems?

Besides providing ease of payments to customers, the BNPL platform has made it cost-efficient for the merchants to avail of this service. Here are just some of the benefits of BNPL that tackle the credit collection problem faced by merchants:

• Quicker clearance of dues

Under the BNPL system, the aggregate dues of the merchants are settled once or twice a month, depending on the BNPL service they avail of. Since monthly settlements are done, merchants get access to funds earlier with the BNPL system than with credit cards where settlements might take 45-60 days. This is particularly favourable for MSME businesses where cash is a primary factor in keeping the business running smoothly.

 

• Better cash flow management

As merchants are assured of their settlements every month under the BNPL system, they can make their cash flow projections easily. They can track their accounts to find out the dues that they are owed. Moreover, merchants can expect the funds to be credited to their account within a specific date and then plan the expenses for which the funds would be needed. This is helpful and allows businesses to plan and meet their working capital requirements.

 

• Lower chances of online frauds

The BNPL platform is offered to customers who are creditworthy and prompt in making the payment for their online transactions. Customers are selected through complex algorithms which take into account behavioural and other parameters of the customer. If a customer is a preferred online shopper with a good track record of payment, he/she would be offered the BNPL facility. The spending limit is capped. These factors ensure that merchants do not face the problem of online frauds and payment defaults, making BNPL a preferred option for them.

 

• Increased customer affinity

BNPL offers customers a one-touch payment process wherein they don’t have to indulge in 2-Factor Authentication steps to make payments. This is particularly helpful when customers are indisposed to undertake the step-by-step payment process or if they are pressed for time or simply don’t want the hassle. 

Since the BNPL system allows customers to pay later at a convenient time, customers tend to show increased loyalty towards merchants who offer them the benefit of one-touch BNPL payments. This increases customer affinity and helps merchants cash in on the increased customer base.

 

Conclusion

BNPL payment has been around for a few years now but there is still some work to be done around creating awareness. The importance of such a payment option was highlighted during the lockdown when customers realised the power of having access to unsecured loans of small amounts to meet their needs.  This in turn allowed merchants to continue providing services without the worry of default or credit collection woes at a later date. 

As the BNPL platform is developing, it is expected to change the game of payment collections for the merchant, making it simpler and safer. As digital payments become more accessible and affordable, the number of merchants adopting these modes is expected to grow, thereby, fostering competition and boosting the e-commerce industry further.