Simplifying Payments: How buy-now-pay-later (BNPL) is a perfect payment alternative for digital-first consumers in the post-COVID era
The impact that COVID-19 has engendered on businesses and humanity is unprecedentedly large-scale. Organisations, no matter how big or small, didn’t think of a day like this when transiting to remote working would become a necessity, to sail through the crisis.
However, we can’t deny that the on-going pandemic has also created a lot of growth opportunities for businesses to innovate their existing models and operations, and thereby deliver better products and services to new-age customers.
Growth of digital payments in India during the on-going pandemic
One of the greatest benefiters of this pandemic is the country’s digital payment ecosystem, majorly comprising of modern fintech players that aim to empower customers with seamless and hassle-free payment mechanisms while also ensuring social distancing in the process.
According to a recent report, the number of digital payment transactions has surged by 23% between June and July. This growth can be attributed to the rapid adoption of digital payment methods such as e-wallets, UPI, debit/credit cards and net banking, among others, against the backdrop that cash can be a carrier of coronavirus.
But, here’s the catch!
Digital payments are not that smooth and come with its own set of glitches. Often, consumers deal with issues like payment failures while making payment through apps or delay in receiving OTPs that again leads to the same problem while paying via plastic cards.
Although several leading hyperlocal merchants have launched their in-house payment gateways and wallets, the issue with digital payments yet remains unaddressed due to multiple friction points, eventually spoiling the entire payment experience.
This is where innovations like buy-now-pay-later (BNPL) come to the picture.
The advent of buy-now-pay-later
In the wake of growing online shopping during the quarantine period, various fintech companies have come forward to offer small, unsecured cash advances, without charging any interest. These players mainly target student masses and young professionals, who are heavy mobile users and make most of their transactions using mobile phones.
In reality, BNPL is not something new to Indians. In fact, our people still use the Khaata system of payments, where they pay the entire bill at one go, usually by month-end, rather than paying every time during purchase.
The only difference is, the modern fintech players are doing the same thing digitally. For instance, one can buy groceries, food, medicines, etc. and pay the total collated amount later. This makes BNPL somewhat similar to a credit card. This brings us to a notable question.
How is BNPL a better option than credit cards?
The millennial generation has rapidly developed the practice of ‘buy now and pay later’ approach to meet their changing aspirations – be it their travel goals, buying a laptop or just spending money on random shopping whenever they see a lucrative deal online.
However, this generation is of the kind that constantly looks for better products that not only offer credit but a series of other aspects too, such as transparency, affordability, convenience and most importantly, peace of mind.
The Perfect Analogy
Unfortunately, credit cards lack most of the aforementioned factors. It charges high-interest rates, fees and also provides low transparency. BNPL, on the other hand, are interest-free, transparent and ensures a smooth checkout flow to consumers, making it more superior than credit cards.
The best part is, unlike credit cards that don’t qualify first-time credit users due to their lack of credit history, BNPL offers advances even to the individuals with low or no credit history. This also makes it a better alternative for naïve credit users who are not well aware of the risk of falling into long debt traps.
In short, it is not a credit instrument, but an aspirational product designed to offer great user experience while buying online.
If you look at it closely, you will realise that this category is more affordable as it is absolutely free for consumers who pay on time and also helps them better manage their budget by not charging them heavy interests, but only a late payment fee, which otherwise is completely avoidable if the money is repaid on time. It’s as simple as that!
In fact, some global leaders in the BNPL space say that it also benefits merchants in terms of basket size, purchase frequency and cart-conversion. Hence, it also acts as a growth tool for the merchant community to enhance and augment their respective businesses by going beyond the boundaries of payments.
The Future Roadmap
The fact that 60% of online shopping was taking place via cash before the pandemic happened, has now changed with consumers opting for more and more digital payment methods. Much of this transition can be credited to companies that are quick adaptors of the contactless services and thereby aligning the same with their current operational strategies by eliminating cash transactions to ensure safety. In fact, thanks to the government for encouraging consumers to adopt digital payments and avoid dealing in cash.
All these factors when combined indicate that the future of payments is going to be digital - slowly but surely. As consumers become aware of the benefits that BNPL brings to the table and truly understand the gravity of the current pandemic, digital payments will become a necessity, sooner or later, and help India steer towards a digital-first economy in the times to come.
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