Buy Now, Pay Later Apps: Changing Consumer Spending in India

Traditionally a few years ago when we needed to purchase an expensive product we were left with two options – full cash upfront payment or credit card. Another middle path has emerged: Buy Now, Pay Later Apps, these days.

Popularly known as BNPL, this mode of payment has found increasing use among the young professional class, students, new credit users and the online shoppers who prefer the luxury of paying through installments. Customers, be they buying a new phone, a plane ticket or just house utilities can split the payment through this service.

It’s an easy concept with a fast changing infrastructure, new entrants in the market, integration of installments in checkout options and customer adaptation for digital credit products. This guide is here to let you know how the Buy Now, Pay Later apps function, who are the leading players in the Indian market, the pros and the cons of using this facility and what is required before you use them.

What Are Buy Now, Pay Later Apps?

BNPL apps are those that let users buy something or service instantly and defer the cost, either in a single payment later or by making repayments over time in installments.

Users take the item now but receive a short-term loan that they can pay off at a specified rate, rather than paying the full price at the time of purchase.

BNPL services can now be accessed for:

1. Online purchasing
2. Electronics shopping
3. Lifestyle and fashion goods
4. Travel arrangements
5. Medical services
6. Education courses

The model proved popular, offering an attractive way for consumers who sought flexible payment without needing a traditional credit card to obtain funds.

Reason for Buy Now, Pay Later (BNPL) Growing in India

India’s digital payments space has seen a phenomenal growth over the last decade. The adoption of UPI, penetration of smartphones, increasing e-commerce activity and so on has led to a fertile ground for digital credit products to grow rapidly. The primary drivers for BNPL adoption are:

First-time users gaining entry into the credit space

The young and first-time earners are usually not eligible for premium credit cards, BNPL gives a stepping stone into accessing short-term credit.

Growing E-Commerce

The online marketplaces have readily enabled EMI options at the time of checkout. The entire process just takes a few minutes.

Convenience

Consumers find it more convenient to make multiple small payments than a large chunk.

How Buy Now, Pay Later Works

It is mostly a straightforward process:

Step 1: Sign up

Users create a login and pass verification process.

Step 2: Check eligibility

The provider looks into:

Age requirements

KYC details

Credit score

Repayment history

Step 3: Approved spending limit

Approved users can get a spending limit and continue to purchase at the provider.

Step 4: Spend at the merchant

The approved credit limit can be used for purchase at partnered merchants.

Step 5: Repay the limit

Users make the payments as agreed.

Payment plans will be different from each provider.

Popular Buy Now, Pay Later Apps in India

Several companies have set up their presence in the Indian BNPL space.

Simpl

Simpl offers a “pay later” checkout experience, aiming to smooth the purchase process.

Common benefits:

1. Single bill every month
2. Quick check out
3. Several associations of merchants

Lazy Pay

Lazy pay is basically for short term credits and also for installment payments for the eligible users.

Features

1. Online shopping
2. Bill payments
3. Digital transactions

Amazon Pay Later: The buy now, pay later (BNPL) service by Amazon allows the eligible customers to later pay the price of their purchased good via installment payment.

Products generally purchased using Amazon Pay later:

1. Electronics
2. Household appliances
3. Daily products

Flipkart Pay Later: this service is embedded within the Flipkart shopping window for a fluid payment experience with installments.

ICICI Bank PayLater: Several banks have ventured into BNPL through digital credit facility to the bank customers. ICICI bank has been a long term player in this vertical.

HDFC FlexiPay: Existing customers can turn eligible purchases into equal monthly installments (EMIs) by availing flexible payment options by HDFC.

What is The RBI’s Take on BNPL?

With the Buy Now, Pay Later products sweeping in India, the Reserve Bank of India has paid closer attention to digital lending methods in an attempt to ensure there is transparency and customer protection. This in turn will aid in making sure there are ethical lending practices amongst the banks and NBFCs.

The RBI mandates that regulated entities disclose:

1. Interest rates charged.
2. Processing fees charged.
3. Repayment dates.
4. Late payment penalties.
5. Loan terms and conditions.

This aids to make sure the borrower is aware of what the service really costs prior to accepting any offers.

When Does It Make Sense to Use BNPL?

Of course, not all purchases require financing.

But there are cases in which payments are beneficial:

1. In case of a critical breakdown of electronics
2. In case a laptop or smartphone suddenly ceases to function, a person’s working capacity and a number of daily affairs can be affected. BNPL would not limit mobility, in this case, nor force to spend all available money.

For Learning

For training courses online or professional development certificates. Sometimes the payment for the courses is rather high. BNPL will help to acquire necessary skills.

For Travel

Some people take out installment payment for booking of flights, accommodation.

Things consumers should be aware of. BNPL is convenient to use, but you need to be able to manage them.

Spending more money than they normally would

BNPL can give consumers the false idea that what they’re buying is actually less expensive because the installments are small amounts of money.

Late Payments

Late payments can cause consumers to be:

1. Charged additional penalties.
2. Charged additional fees.
3. Brought down credit score.
4. Multiple open BNPL loans

Using a number ofBNPL plans at the same time can be a strain.

An individual product could be manageable for someone, but combining that with several other products would become unmanageable.

Buy Now, Pay Later vs Credit Cards

BNPL services are usually compared with conventional credit cards by the consumer.

Buy Now, Pay Later (BNPL)

Good Sides Are:

1. Quick and easy approval procedures
2. Available merchant-specific deals and benefits
3. Seamless installment plans

Bad Sides Are:

1. Low spending caps
2. Restrictions based on the merchant
3. Not as many long-term benefits

Credit Cards

Good Sides Are:

1. Wider acceptance
2. Rewards schemes
3. Higher spending caps

Bad Sides Are:

1. Higher approval criteria
2. May have interest charges

So now the choice is a personal decision based on individual financial requirements and lifestyle.

What Providers Usually Look for Before Approval?

Approval criteria vary but include:

Identity check: Provider require a KYC compliancy

Credit history: Certain provider analyze repayment behavior and credit history records

Income profile: Provider might be considering the spending capability based on income

Active obligations: Other loans and credits can be part of the calculation

BNPL Industry Trends Today

The market is moving at a fast pace.

Key trends influencing the industry include:

Increased Regulatory Scrutiny: Regulators are monitoring online lending practices more closely, placing more emphasis on consumer protection and transparency.

Broader merchant Integration: BNPL options are now visible on the payment page of various e-commerce stores.

Growth beyond Retail: BNPL offerings are being expanded into:

1. Healthcare
2. Education
3. Travel
4. Professional services

Customised limits: Lenders are able to more precisely assess consumer credit risks to customise individual limits.

Who Needs to be Careful About Using BNPL?

Some users would do better to avoid the risks BNPL might entail.

Some of the people to look out for are:

1. Those whose earnings are precarious.
2. Those who already have various forms of credit.
3. Those who have difficulty remembering their bill payment due dates.
4. Those who tend to shop spontaneously.

Some flexibility with regard to loans can be a positive thing-so long as the debt can be repaid.

Content Disclaimer

This information is for educational and informational purposes only and not financial advice. Terms, conditions, features, eligibility criteria, repayment tenure, interest rates, fees, and availability are subject to change. Before applying, check the latest terms and conditions directly from the service provider’s website.

Conclusion

Buy Now, Pay Later apps have found a place for themselves in Indian consumer finance landscape. While their popularity comes down to convenience, they are actually bridging the gap between credit products and upfront cash payments. BNPL if used cautiously, can go a long way in helping you with your expenses, cash flow, and important purchases, but otherwise can lead to stress from repaying, and accumulation of debt. Look beyond the checkout button, understand the payment cycle, terms, and make sure that you can afford to pay for what you are buying before you apply for the BNPL service. Flexibility is great, but only when it works for you, not against you.