This Diwali, when you shop online and your mother asks how much you spent, maybe you can say ‘nothing’. And, clear the dues later. Doesn’t mean you won’t have to pay, you can just do it later when your expenses are lower than during the festive period.
As India is gradually adopting digital modes of payment, a new method 'buy now, pay later' (BNPL) has caught the fancy of shoppers, especially youngsters.
The short-term financing service '
buy now, pay later' allows customers to spread out payments for a purchase without any additional interest, lowering the sticker shock to the wallet. This Diwali, fintech companies have been trying to entice more and more users to their platforms with festive offers and schemes.
So, how does it work?
Fintech platforms offering BNPL schemes tie up with e-commerce players, food delivery platforms, or travel booking players and let customers borrow to pay for the shopping or services. The customers have to pay back within a specific time period that can range from a few days to a few months. People can also spread the payment over multiple smaller installments at no additional interest.
While the process is simple and hassle-free, shoppers must not forget they do have to pay back at one point and that sum must suit their budget. However, reports suggest that many consumers have been shopping way too much during the festive and holiday season, which has experts worrying BNPL can be a recipe for overspending.
A CNBC report cited McKinsey as saying shoppers tend to spend more per purchase when they use BNPL.
Though rising defaults on BNPL payments is a more prominent trend in the US, BNPL platforms in India acknowledged the multifold increase in use of the payment service during the festive season and the tendency to shop more than usual.
Amazon Pay director Vikas Bansal said, during the month-long Great Indian Festival 2021, customers used
Amazon Pay Later for large as well as small value payments. Over five lakh new customers have signed up for Pay Later, he said.
“We are also seeing about a ten times surge in usage for Pay Later originating from Tier 2 and 3 cities owing to an easy onboarding process. During the first day of the Great Indian festival, we saw about four times more customers signing up for the pay later option, compared to usual business days,” Bansal told CNBCTV18.com.
Meanwhile, Nitya Sharma, co-founder and CEO of Simpl, one of the
BNPL players, pointed to the shift from offline to online shopping. The percentage of what people are buying online is increasing, he said.
“Second is, while COVID seems to be somewhat under control, people are still cognizant of it. So, instead of going to a crowded market mall and buying things, or even eating at outside eateries or restaurants, they are shopping online and are ordering food from say, Zomato,” he said.
That’s what
Simpl has noticed with the BNPL transactions going up. He, however, said that he does not expect spending to be much higher than 2019.
“Same sort of range, roughly maybe 10 to 15 percent higher, definitely a lot higher than last year, which was artificial,” he said.
At Simpl, there has been almost 10 times growth in BNPL transactions between last Diwali and this one, he said.
Speaking about this festive season, Sharma said, “starting last weekend to this weekend... even yesterday’s numbers show people are staying at home and ordering a bunch of stuff online. And what to expect during the two week period? Maybe double spend, double load.”
Especially during holidays and the festive season plus when a little bit of pressure COVID is off, people are just wanting to express themselves. And when they want to express themselves, they want to buy. “So that's what we are seeing people just spending their money away into B2C e-commerce platforms,” he said.
On the downside of BNPL, Sharma said that it is the bilateral responsibility of the customer and the service provider to ensure spending is within a budget. Budgeting is important and a BNPL service must empower the customer as opposed to disempowering.
Explaining the process at Simpl, he said, “We think about infidelity. For example, if you have a small window of 15 days, naturally, you will spend according to budget because you got to keep on spending for a long time. But, the longer the window, the more you can spend before having that check. So if your cycle is shorter, then the check is naturally going to come. But if the cycle is longer, say a month, or even three months or six months, the moment of reckoning comes much later.”
On the other hand, Jatin Singhal, a regular user of the Simpl platform, said the notion generally is to shop and spend more when people can pay at a later date but it is more of an individual call. “If I could pay today's bill, like, say, a month after? Why not? I get more money to invest or more money to do the things that I want to do at that point.”
He explained that even if he has to pay later and has spent more than his income that month allows, he has set aside a sum for expenditures, which saves him the problem. “But, it definitely could be a problem for people who are not monitoring and balancing their finances,” he told CNBCTV18.com.
