Should You Go for Buy Now, Pay Later (BNPL)?

Credit cards offer convenience when people are cash-strapped or when they prefer making a consolidated payment rather than paying for each purchase. The 'Buy Now Pay Later' payment option has emerged as a winner in this regard. The Buy Now Pay Later (BNPL) payment method has evolved to meet the needs of both businesses and customers. Technically, a successor of the credit card system, it is a more reliable, secure, swift, and convenient payment method with added affordability- several start-ups such as LazyPay, Simpl, ZestMoney, and ePayLater operating in this space.

The core tenet of the BNPL service is that it allows user to pay overtime while still being able to afford what the user wants today. BNPL services have a credit period ranging from 30 to 36 months, depending on the transaction size. Similarly, the amount of credit is determined by the lender. For instance, ZestMoney, a BNPL lender, offers up to a personalised limit of Rupees 60,000.

The main feature of the ‘Buy Now Pay Later' service is that it is a one-click credit facility available on merchant apps and websites during checkout. This short-term credit option from BNPL allows you to make immediate purchases and pay for them later.

By reducing shoppers' purchase hesitation, BNPL helps merchants increase conversion rates and average order values (AOV). It is expected to gain in popularity as a method of payment that benefits all parties involved. For starters, like other BNPL service providers Paytm Postpaid and Amazon Pay, Flipkart recently expanded its Flipkart Pay Later services to make credit available not just on the platform but also on other partner channels.

BNPL practically eliminates the major annoyances that consumers encounter when conducting online transactions. However, it also addresses the issue of user empowerment without putting them in a debt trap.

Banks are also using BNPL to entice a new group of customers who have previously avoided using credit cards. For example, ICICI Bank partnered with payments giant Pine Labs to offer retail customers in-store pay-later options. This allows customers to make large-ticket purchases and pay in monthly instalments (EMI). It simplifies onboarding by reducing documentation in addition to providing a no-cost loan product.

BNPL does not require users to share their credit card or bank account information, nor does it require them to disclose any financial information. This addresses two problems: first, it lowers the risk of card and payment fraud. Second, it reduces the amount of time it takes to complete a transaction. The payment process becomes more seamless without the need for authentication or bank account information. As a result, people gain security, while also saving time.

Another feature of BNPL that makes it a preferred payment option is the level of transparency it provides. In most cases, there are no hidden fees or charges that could catch the user off guard. Unlike with credit cards, the user knows exactly how much credit they have available, what is due and when. There is a small fee for late payments, but the service is otherwise free.

Moreover, consumer empowerment is one of the most important aspects of BNPL. It has allowed customers to purchase what they require when they require it. It was critical in getting essentials to customers in the most convenient way possible, especially during the lockdown. As a result, it has aided in the development of trust and loyalty between consumers and merchants who offer BNPL. The Pay Later start-up witnessed up to a 35% surge in online transactions for essentials during the lockdown. LazyPay also saw a huge surge in its overall customer base during the pandemic.

While this payment option addresses some of the most pressing payment issues, there are a few things that consumers should be aware of.
Not everyone can use the BNPL service. Machine intelligence makes the credit decision, with no human involvement. Users are carefully selected using complex algorithms that analyse hundreds of factors, such as the consumer's behaviour on merchant platforms. People do not get to choose BNPL as a consumer; the system does.

At the end of the day, BNPL is a credit system branch. The consumer is allowed a certain credit limit based on their spending behaviour, and the consumer must clear the dues at the end of the billing cycle. Failing to do which, the person faces a penalty; minuscule, as it may be, it is still a fee, and failing to clear can get the account blocked. Simpl, for example, levies a charge of Rupees 250 plus GST as a late penalty if you miss a repayment.

The service is not available at all merchants because BNPL is a relatively new development in the payment space. However, it should be noted that an increasing number of merchants are beginning to offer BNPL to their customers.
It is entirely up to the individual to decide whether or not to go ahead with it. BNPL has improved upon the best features of the credit system. However, the fact that it is still credit does not change. BNPL also provides a simple way to keep track of your expenses while also providing short-term credit.

Despite all the advantages and appealing features, industry experts advise customers to exercise caution when using the buy now pay later service.

Late fees or penalties are charged as one-time fees, which are usually not compounded, unlike credit cards, though it varies from lender to lender. It is important to remember that BNPL is still a loan, which means that BNPL providers can report one's repayment history to credit bureaus.

Experts say that, just like any other loan, the customer must make timely repayments to maintain a good credit score because most BNPL providers report repayments to credit bureaus.