Navigating the digital lending wave with a customer-centric payment option

Gen Z and Millennial shoppers are looking for instant gratification and value-rich perks such as customization, durability, security, among others, while making various purchases. Buy Now Pay Later (BNPL) services with their customer-centric approach facilitate affordable and transparent credit solutions and have become very popular among young earners in India. According to a report, BNPL is the fastest growing online payment method in India and is expected to reach 8.6% of e-commerce market value by 2025 from just 3% in 2021.

The BNPL scenario in India

For customers around the world, e-commerce payment preferences continue to shift from cash and credit cards to digital wallets. According to a Research and Markets report, the age group between 26 and 35 comprises the key segment of the BNPL market in India, where people predominantly prefer shopping clothes and electronic items using BNPL. The Covid-19 pandemic has also played a major role in encouraging people to shop online, thereby increasing the use of digital transactions.

BNPL (an element of integrated lending) represents a crucial element of integrated finance, which is expected to reshape the payments ecosystem in India. BNPL services allow consumers to pay for goods and services, either through a single bill or through a fixed set of installments. Apart from the push of digital payments due to the pandemic, the availability of digital tools such as eKYC, UPI, etc., has enabled customers to purchase products in installments. Even on the merchant side, many have boosted their online presence to appeal to a variety of customer segments. The Indian BNPL market includes app-based, e-commerce, card and mobile wallet based companies offering BNPL services.

BNPL compared to other loan options

Today, besides BNPL services, other popular loan products include credit cards and personal loans, which are highly chosen by customers. However, there are some differences between the three. The main difference between a credit card option and BNPL is that one can use credit cards with any business that accepts them, whereas BNPL can only be used by integrating a merchant partner. Also, credit cards may have some undisclosed fees, whereas the BNPL is more transparent and there are no eligibility criteria unlike that for credit cards. When it comes to personal loans, clients can opt for secured and unsecured loans and an interest rate is charged on the principal amount while BNPL is secured and no interest is charged on the principal amount.

Ease of onboarding, less penalties for late payments, faster resolution of customer issues are some of the key features, which have contributed to the surge in adoption of BNPL services. Considering that only a small percentage of registered customers of Indian banks hold credit cards, BNPL has a great opportunity to tap into untapped credit potential. BNPL players are well positioned to fill this gap, as the low use of credit cards in India is linked to apprehensions related to high interest charges and hidden charges. BNPL also has great potential for growth, due to the continued increase in the number of smartphone users and better connectivity and internet facilities across the tiers.

The road ahead

Consumers around the world are widely adopting BNPL services. However, BNPL players have their own challenges due to regulatory concerns, just like other digital lending companies. In India, a key issue is that many digital lenders have jumped on the short-term credit bandwagon without the NBFC license, although RBI offers stricter frameworks.

Existing and emerging digital payments require embracing technology and innovation along with a more secure digital experience to gain customer trust. In the technology-driven payments space, open banking and real-time payments infrastructure is expected to create innovative payment solutions for customers and new payment acceptance paths for merchants and businesses. At the same time, it is important to adhere to regulatory guidelines and adopt fair business practices in this space, which will enhance the customer experience in the long run, as BNPL will prove to be a great way to establish promising relationships with clients. India is becoming a stronger digital nation and payment solutions like BNPL are driving greater financial inclusion.



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The opinions expressed above are those of the author.



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