BNPL is currently on fire. not only in the United States but also in India. Here is a basic explanation of the phrase if you are unfamiliar with it.
Imagine that you are looking for shoes and you come across a great pair that costs $2,000 on an e-commerce app. However, it’s a little beyond your means. You briefly disregard all caution and put the sneakers in your buying cart. But soon enough, reality sets in, and you start to think about returning the entire purchase.
And then, out of nowhere, the app offers a buy now pay later substitute. You don’t currently have to pay the $2,000 fee. You might pay it next month instead. as stated in the terms and conditions, “Buy now, pay later,” without interest.
It has an unbelievable feeling. Nevertheless, you decide to buy the item, leaving you to question, “Why on earth are they allowing you to buy things right now without even having to pay for it?”
What is BNPL?
BNPL is made to make a hefty purchase seem more manageable. Imagine if someone hadn’t presented you with this choice. Your entire order would have been abandoned, costing the online store a possible sale. It’s not good. Therefore, it’s difficult to resist when businesses like Afterpay or Lazypay (in India) provide a BNPL solution.
In this instance, after deducting a modest fee, Lazypay will pay the online store 2000. Next month, they will come and get it from you. They might impose a late fee if you don’t pay on time. But that’s pretty much all. They generate the majority of their income in this way.
BNPL firms must bear the risk that some of these customers won’t pay up, despite the fact that it is a real possibility. They’ll suffer a dent to their profit margin and carry on.
Benefits of BNPL
Now, this is a really great chance for e-commerce businesses, food delivery applications, and other similar entities to increase transactions. You might be persuaded to make “repeat purchases” and larger order values. While transacting, there is less friction. Additionally, it presents a respectable business prospect for BNPL enterprises. In fact, they might even allow you to upgrade to higher ticket loans with EMIs and other things if they notice you’re the kind of customer who consistently pays on time. So, yes, there is promise.
Hazards of BNPL
One is that the majority of BNPL businesses still support little transactions. In addition, the margins are awful. The fact that they welcome users even those with bad credit is another factor. So if they can’t adequately assess threats, things could get a little unpleasant.
What’s more, major shops are currently developing their own internal BNPL solution. Therefore, independent businesses may face stiff competition in the near future. However, the influence BNPL has had on consumer behavior, particularly in India, cannot be disputed.
In this nation, not many people have credit cards. They do, however, have great ambitions to live their lives as they see fit. And BNPL businesses are supporting them in achieving this goal. In reality, they are also pulling customers away from conventional banks while they are at it.
Impact of BNPL
According to survey data, one-third of all BNPL consumers may have missed one or more payments. Retailers are not exposed to the default risk, but high default rates could raise concerns about BNPL’s ability to continue operating in the long run. Federal authorities may impose fee caps and late payment fines on BNPL transactions as a result of their investigation. Consequently, it is easy to see how substantial default losses combined with legal restrictions on recovering those losses pose a risk to the industry. This leaves BNPL providers in an awkward situation, forcing them to hunt elsewhere for income with just two possibilities that stand out: customer fees or higher costs for shops.
The Bottom Line
All of this suggests that BNPL suppliers may have difficulties. Retailers’ acceptance of BNPL, particularly in the context of online buying and the ease of CIBIL score demands, has contributed to its recent success. Retailers shouldn’t necessarily stay away from or avoid doing business with BNPL enterprises, but they should assess their own policies and relationships with BNPL to ensure that they will be prepared if bullets start flying. Retailers would undoubtedly be impacted by a meaningful investigation into BNPL, but the risks seem manageable with the right planning.
