Explained: Why 'Buy Now Pay Later' is a good idea which can quickly become a bad one

The Buy Now Pay Later (BNPL) has managed to impress a lot of young shoppers. The advantages of opting for the BNPL scheme are far more attractive than getting a personal loan or credit card.

The BNPL offers customers the convenience of making payments for purchases with a 15/30/45 day repayment period. A customer does not have to worry about a credit check, paperwork, EMIs, etc. It comes with a zero percent interest rate too.

As per Goldman Sachs, the Indian e-commerce industry is expected to touch $99 billion by 2024. According to the Global Payments Report by Worldpay, the BNPL online payment platform will increase from the current 3 percent to 9 percent by 2024. As the appetite for online purchases or e-commerce companies increases, so will BNPL.

A customer while shopping online may decide to postpone a purchase for lack of money. With BNPL, merchants can offer the same product at the same price allowing the customer to purchase the product without making any immediate payment.

The BNPL company will make the payment to the merchant on behalf of the customer after charging a small transaction fee. The customer then has to pay the BNPL company within the stipulated period agreed.

Flipkart for instance expanded its Flipkart Pay Later services to ensure credit is available not just on the platform but also on other partner channels like other BNPL service providers such as Paytm Postpaid and Amazon Pay.

The BNPL can result in impulsive purchases. Buyers are generally tempted to buy more than what they can afford resulting in a debt trap and perhaps unable to pay later.

Another bad idea is BNPL companies generally report to credit score agencies, like CIBIL, the repayment of the loan and the default in repayment of the loan by the customer. This can affect the ratings of the customer as credit scores are mandatory when it comes to higher volumes (above Rs 25,000 to Rs 100,000) or purchase of say a car or a home.

For BNPL companies such as ZestMoney, Capital Float, Simpl, and a lot more, the risks are higher if the customer decides not to repay the said loan. The merchant is the ultimate beneficiary in this whole deal.

If the customer is confident of making the payment within the stipulated period of time, BNPL can be a good option as it is quick, hassle-free, and digital.

A personal loan can be opted for if the ticket size is higher than what is allowed by the company or the e-commerce player. For example, Flipkart allows one to opt for the BNPL option if it’s less than Rs 10,000 at the time of checkout.

A credit card though it offers a credit period like BNPL comes with hefty transaction fees such as late payment fees, GST, surcharge, merchant transaction fees, etc.