As millennials hit their prime spending years, their buying patterns will create the next wave of changes in the financial world. Nowhere is this more evident than the payment industry that has undergone a paradigm shift in the last few years. From cash-only to credit cards, the industry is now swiftly pivoting towards digital payments that depend on less cash and physical cards.
In fact, digital payments have emerged as one of the fastest growing segments in the high-growth fintech industry. With more than 40 billion transactions worth over quadrillion rupees , the digital payment industry has emerged as a leading player in the sector.
In keeping with its innovative nature, the latest trend in the industry is the ‘Buy Now, Pay Later’ or BNPL model. Similar to a credit card payment method, BNPL offers the user even more convenience. Targeted at the digitally-savvy millennial generation, it has garnered increasing uptake among online merchants. As a user-friendly, low-commitment payment mode, it is now expected to be the dominating trend in the next few years as more millennials adapt to digital payments and no need to transfer/load wallets.
How it works
BNPL works similar to any credit based payment, such as credit cards. Typically associated with digital payment platforms, it allows buyers to buy a product or service and pay it later as a lump sum or in installments. Under the model, a digital payment platform offering BNPL services, ties up with a merchant, such as Amazon, Flipkart, Zomato, or Swiggy.
Buyers can opt for the BNPL mode at the time of purchase. Most platforms do not charge any interests if the payment is completed within the stipulated time frame.
Improving user experience
BNPL’s biggest USP lies in its ability to improve the user experience, making payments smooth and easy, starting from customer onboarding to the repayment process.
Easy onboarding: It is this feature that puts digital BNPL services above the credit card payment system. Credit cards are typically issued only after due diligence that can involve tedious documentation. In contrast, digital payment vendors have a smoother app based onboarding process where the vendor may look at past user behaviour or ask for basic details such as Aadhar or pan card
Easy payments: These platforms are emerging as industry specific targets and offer easy repayments.. The format makes it easy for a buyer to make a purchase even if they don’t have enough funds at the time and make repayments later.
The way ahead
Currently, BNPL payments are limited to small ticket purchases and slowly getting in to large tickets. As a nascent industry, the payment models are still developing and regulatory is also evolving around. However, as it takes hold, one can expect easy credit for larger tickets, allowing payment values similar to credit cards. The biggest driver for the industry is millennial buying behaviour which increasingly relies on digital modes. Digital payments like BNPL can be carried out on one’s phone, removing both cash and credit cards.
Digital payments received a further boost during the pandemic with 68% of Indian consumers now preferring online payment routes for financial transitions . One survey revealed a clear preference for UPI and online wallets over cash or credit/debit cards among millennials . In a country with a very low credit card penetration of 3.3 percent, BNPL players can play a crucial role in extending easy credit for buyers.
However, one of the concerns here is the delinquency ratio or the number of people who are likely to default. Most payment platforms and vendors are betting safe with low value and high volume transactions. However, as the industry evolves and we have more data and better insight into consumer behavior, digital platforms will be in a place to extend bigger loans and lower interests in case of late payments.
Ultimately, the adoption of BNPL as the dominating installment pay mode is most likely because of the quick adoption of digital platforms and its potential as habit-forming. As more millennials use their phone as their default paying mode, more and more people will switch to BNPL instead of reaching for their credit card or going through the cumbersome process of applying for a loan.
The author, Guhan Muthusamy, is Co-founder and Software Architect at Mindgate Solutions
(Edited by : Anshul)
First Published: IST