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With customer convenience as its core bedrock, Buy Now Pay Later (BNPL) has positively impacted the fintech revolution in 2020 with the potential to rewrite the digital credit cum payments playbook ahead.
With the increased thrust on cashless and touchless transactions being necessitated by the pandemic, new digital monetary channels, including unsecured, informal credit lines have emerged. BNPL, a subscription-based credit mode, is fast catching up in popularity amongst Indian customers.
COVID-19 has been a tipping point for adoption of digital modes by the Indian consumer; aggravated by the pandemic, many buyers have opted for deferred payment options like BNPL.
With enhanced penetration of online shopping and home delivery of groceries, medicines and essentials taking centerstage, many e-commerce players and merchants have jumped onto the BNPL bandwagon to ensure a seamless buying experience for customers and boost sales. Capgemini’s study highlights the digital payments explosion across customer touchpoints that occurred in 2020 globally. BNPL or point of sale lending commanded a 30.1% share.
BNPL: A nascent industry poised for high growth
It is estimated that globally, the BNPL market is expected to touch $33Bn growing at a CAGR of 21% during 2019-27. Since the BNPL industry is still at a nascent stage in India, formal statistics related to its performance are limited. It is said that by reading smoke one can decipher the intensity of the fire. Along similar lines, we can gauge the broad success and future growth prospects of BNPL based on the proliferation of credit-based purchases and digital consumer lending, structural changes in customer perception of digital modes and generation-driven inclination towards embracing digital across formats.
1. Consumer Lending: A bright spot in the digital credit space
Often, VC funding received by a sector indicates its growth potential. A recent Inc42 survey indicates that between 2019-20, VC funding to the consumer lending startups was sizeable $393Mn. BNPL, which falls in the consumer lending space commands a 16% share of VC funding as depicted below.
With BNPL’s credit-cum-payments innovation being a disruption in the existing models and a latent market available, we can expect further VC inflows and further expansion in the BNPL space in the coming days.
2. The preference for instant credit and related purchasing power fueled the growth of BNPL
It is estimated that approximately 5.6 Mn credit cards are issued in India each year. This trend indicates the growing preference for credit -driven purchases is the exponential growth in credit cards. The overall adoption of credit model for buying is expected to further boost the growth of BNPL platforms.
3. Structural changes gave a fillip to BNPL
Accelerated by the pandemic, several structural transformations have been witnessed at the point-of sale transactions stage, with a simultaneous integration of software and digital payments, along with a preference for cashless and cardless payments for a smooth purchase experience. Further cybersecurity concerns surrounding possible password breach in netbanking and e-wallets or PIN data leakage upon card swiping have paved the way for BNPL to emerge as a viable and secure option at the time of check-out.
4. Credit lifeline for those considered ‘less’ creditworthy
Digital natives like Gen Z and millennials, including those without a credit card have found comfort in the simple process, small-ticket size payables and instant gratification benefit offered by BNPL. Further, the upfront funds availed for purchases under the BNPL model do not fall within the ambit of CIBIL scores.
BNPL’s value proposition
The characteristic of a high-growth industry segment is the entry of several peers to capitalize on the market opportunity, until saturation point is achieved, followed by consolidation upon sector maturity. The recent developments are evident of the validity of the above principle. The BNPL segment has witnessed a foray of several new entrants. Given the evolving nature of real-time payments from speed of transaction completion to delivering a frictionless experience and the credit landscape moving beyond the traditional loan-based lending, the BNPL model is reflective of the innovative convergence of the credit and payments ecosystem and its forward trajectory in the digital value chain.
Simpl is at the forefront of the fintech revolution in India. Through our innovative BNPL offerings and affordable pricing, we aim to catalyze and simplify the payments domain for end-customers and merchants alike.