BNPL is rewriting the future of credit in India

As online shopping becomes the ‘method of choice’ for shoppers amid the ongoing COVID-19 pandemic, Buy Now Pay Later (BNPL) is emerging as one of the e-commerce payment methods at fastest growing in India, paving the way for the future of smarter lending.

With BNPL products, customers can enjoy the convenience of paying for goods such as food, clothing, personal care items, smartphones, refrigerators, and more. with a 15-30 day cushion for refunds or down payments. This means that you have enough room to manage your bills and payments even if your salary is credited late,

This ease of use has caused a boom in e-commerce and the resulting BNPL transactions. Ready to change how credit works in the market, BNPL is expected to capture 9% of the total e-commerce market share by 2024, according to a report by Worldpay.

So what is the real catalyst for this growth?

BNPL’s strongest differentiator is that it requires minimal documentation. Unlike traditional financing instruments such as personal loans, which are usually processed after full documentation, BNPL performs a gentle credit history check. Its ease of access provides increased speed, convenience and flexibility to the user, thus increasing their purchasing power.

Over the past year, the accelerated shift to early digital experiences and consumers’ expectations of how and when to pay have changed. A prolonged shutdown, no doubt, has seen a few sectors face significant losses and layoffs, which has also affected the propensity for personal consumption. But, the restrictions also led businesses and consumers to explore BNPL options, as installments offered payment flexibility and convenience.

Despite these offers and their adoption in a few pockets, the statistics of a CIBIL report point to a significant untapped opportunity for alternative credit solutions in India – of the 220 million consumers eligible for credit in India, around 150 million do not hold any credit products today.

Trends shaping the BNPL landscape

In the aftermath of the pandemic, when personal consumption and discretionary spending plummeted, accessibility has become a central theme, against which a host of BNPL trends are on the rise:

1.Less documentation, more affordability

Deferring the full cost of an item by making payment in installments – this too without documentation of a loan – offers greater agility and affordability. It can help the informal workforce and budding businesses get hassle-free credit and financing. In fact, consumers who cannot make large payments up front will find immense relief from traditionally lengthy loan processes, thanks to BNPL.

2. Retailers and manufacturers will join banks and fintechs to steer BNPL

The coming year will see an explosion of affordable solutions, primarily sparked by the flexibility and benefits of BNPL options launched into the consumer landscape. In addition, these options stimulate growth for both merchants and consumers. With such a dramatic shift underway, the payments industry can expect the ‘next generation consumer landscape’ to witness BNPL offerings from merchants, manufacturers and marketplaces in addition to banks and fintechs. .

3.New creditor communities will rely on BNPL for more consumerism

While consumers of all generations use BNPL tools, Millennials and Gen Z buyers are doing so at significantly higher rates. A recent PYMNTS survey found that more than 26% of millennials and almost 11% of Gen Z consumers turned to BNPL to finance their most recent online purchases, compared to just 7.5% of older generations.

Young people are also making a significant contribution to the ‘new credit’ segment, which is becoming a unique opportunity for smarter lending options such as BNPL to impact low-cost transactions, which in turn will allow better access. to products, services and resources for a younger audience.

Younger buyers stand out in many ways, which may explain their more intensive use of BNPL. Gen Z and Millennials are on more fragile financial footing, which can have a strong influence on which payment tools shoppers prefer to use.

BNPL is also shifting the paperless credit application process to “formless”. The solution marks a notable shift from bank card-based payments to “fintech-focused, mobile-focused offerings.” In fact, fintech companies are becoming the front-end for banks to engage with their customers for such offers.

Small businesses: a great opportunity for BNPL

With declining revenues across industries, small businesses are facing the pressure of limited working capital and cash flow, and many are considering a permanent shutdown.

Scaling up assistance to small businesses is immediate and urgent, and access to credit is a challenge that can be resolved quickly and on a large scale. In reality, RBI data on the Exposure and Credit Gap for the Indian MSME Sector shows that the addressable credit gap in the industry is valued at $ 219 billion. Recognizing this terrible demand for help, the BNPL industry has expanded to include options for small businesses as well.

For merchants and issuers, the change in consumer behavior – of delaying purchases due to the pandemic – could mean a vast pool of potential customers in the short term. Alternative platforms with innovative loan models are already helping retail clients and business owners get credit, adding them to the formal system. This will give banks a view of the credit history of these new customers and encourage them to offer new products and services, thereby tapping into new customers.

How Visa Solves BNPL Scaling Challenges

As with any new opportunity, implementing BNPL solutions also comes with its share of challenges. Despite its many advantages in the consumer landscape, BNPL overcomes challenges related to regulations and acceptance.

Currently, multiple players are fueling the ecosystem’s feeds – basically aggregators drive merchant acceptance and manage user experience (UX), while enablers provide real-time connectivity between lenders and aggregators. While these flows exist, there is a significant opportunity for Visa, the leader in digital payments, to address the scale, governance and efficiency of tiered transactions. Current processes lack a consistent methodology for reconciliation and resolution, while lacking a standard dispute resolution process.

Visa partners with BNPL players, banks and other lenders in leveraging the capabilities of the company’s network to provide:

  • Widespread acceptance by online and offline merchants
  • Standardized experience and governance framework
  • And finally, all of Visa’s solutions are independent of the channels and form factors the customer uses, be it card or mobile.

Visa’s solution streamlines the current process of offering a payout / deferred payment option, with the following benefits:

  • Acceptance Across Channels and Form Factors – Visa’s solutions for traditional and non-traditional lenders enable omnichannel acceptance across card and non-card payment streams.
  • Lightweight implementation for transmitters – This solution is API based with no changes required at the transmitter switch, reducing time to market.
  • Single Integration – This eliminates the need to create direct integrations for settling transactions with individual issuers
  • Standardized and Automated Processing and Settlement – Since Visa offers funds settlement through member banks, there is no need to set up a separate reconciliation and settlement process for banks or merchants.
  • Standardized Dispute Handling – With network based settlement, network controls and reimbursement / chargeback framework apply.
  • Scalable model – As this is driven by the Visa network, a significant number of long-tail banks can participate in this solution, unlike the current model which is limited to only a few large banks.

Exploit the BNPL opportunity with Visa Fintech Initiative

Considering the potential of BNPL and other fintech products to drive impact and drive innovation, Visa launched the Visa Fintech initiative for startups and fintech companies in India on June 24, 2021. The industry sparking a lot of Interest from entrepreneurs, venture capitalists and government entities, the program aims to help improve product offerings and develop better user experiences.

“Buy Now Pay Later (BNPL) is no longer just a buzzword in the Indian payments landscape. Visa partners with fintechs, banks and other lenders to deliver scalable BNPL solutions to online and offline merchants. This is the key to our belief in driving installment offerings that are network, channel and form factor independent. The Visa Fintech initiative will help start-ups understand the potential of tailored affordability solutions and benefit from Visa’s standardized experience and governance framework. Whether it’s cards or cellphones, the solutions we build with our strong networking capabilities help gamers extend their reach beyond subways and Tier I cities, ”shares Arvind Ronta, Product Manager, India and South Asia, Visa.

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