[Expert's View] How BNPL is Transforming Customer Purchasing Behavior

In this new Startup Insight series we connect with industry professionals to know 'How did they do it' - features startup experience and learning from professionals who have done a particular thing in a startup!

Let's see what Mr. Nityanand Sharma, Founder & CEO of Simpl has got to say on 'How BNPL (Buy Now Pay Later) is Transforming Customer Purchasing Behavior'

Simpl provides the convenience of an online khata connected to 5000+ merchants. Simpl works on BNPL mechanism - 'Buy anything on the internet with 1 tap. Pay later.'

BNPL, with its convenient credit purchases and interest-free credit period, is playing a pivotal role in transforming consumer buying patterns. This stands reflected in the surging popularity of BNPL as a payment mode. According to a 2021 Global Payments Report by FIS, BNPL outpaced other payment modes in the high-growth e-commerce and online shopping space in India and is expected to command a 9% market share by 2024, with a 53% CAGR, up from the 3% share in 2020. India’s consumerism-oriented middle class, driven by purchasing power and aspirational purchases are fueling the growth of BNPL, which aims to deliver a digital credit experience to 400 Mn Indians who fall outside the net of the organized credit card financial system.

How BNPL is Revamping India’s traditional Khata system?
How BNPL is driving a data to value transformation?
What are the advantages of BNPL?
What is the need of BNPL?
Is BNPL (Buy Now Pay Later) safe?

How BNPL is Revamping India’s traditional Khata system?

BNPL has brought to the fore an age-old tradition often practiced informally by retail shops in India i.e. taking nagad payment from relatively new customers and allowing udhaar purchases for creditworthy customers. All of the transactions were rooted in trust with the shopkeeper sharing strong relationships with a close-knit circle of customers, often residing in nearby locations.

BNPL has resulted in the reimagining of an existing concept that Indians are already familiar with. Further, with merchants less inclined to offer cash on delivery given the thrust on the cashless digital economy, there is a perceptible mindset shift in the buyers. Seeing the growing buyer interest, BNPL is now available across merchant categories- essentials, staples, groceries, medicines, apparel and clothing, electronics, and beyond. The diversification has further encouraged higher usage levels and reinforced BNPL as a viable alternative to other mainstream payment modes.

How BNPL is driving a data to value transformation?

As a product, owing to its ease of use and easy to integrate functionality, BNPL is inherently customer-centric and merchant-friendly. By leveraging cutting-edge tools like AI (Artificial Intelligence) and ML-based credit decisioning, BNPL is enabling faster transactions with almost instantaneous credit-line approval for purchases at the time of checkout. Through better information about customer credit history and purchase patterns based on predictive models, the BNPL model has accelerated the trust-building process between merchants and buyers. With the pandemic throwing a spanner in the budget of many households, the option to split the purchases bill across time in a convenient manner has eased the financial burden for many. Buyers are able to avail improved liquidity towards purchases without the need to worry about upfront funds outlay.

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What are the advantages of BNPL?

A key factor that works to the advantage of BNPL is the relatively small ticket size of the credit limit available. Thus, the repayment amount is affordable and does not feel like an ‘EMI’ with an attached high-value tag. While EMIs are based on the principle of breaking up a large-sized payment into smaller monthly payments with interest, BNPL is a convenience offered to loyal and trusted buyers of merchants with an interest-free credit period. The low amount size relatively reduces the credit risk and default uncertainty compared to a credit card with a higher credit limit. It has been observed that the buyer propensity to spend is enhanced with BNPL owing to the mere 2 clicks transaction completion process. A study reveals that with BNPL, the basket size has grown in most transactions:

What is the need of BNPL?

India’s young demographic profile, comprising millennials, prefer a prompt and seamless purchase experience. Further, most of these buyers are inclined towards buying on online platforms and making payments through digital modes that are completed within a few seconds. Another notable trend is the moving away from traditional credit facilities that involve a long-drawn and cumbersome approval process. A credit card is often positioned as an alternative to BNPL. However, out of 900 Mn banking customers, it is estimated that only about 3% use credit cards attributable to the high charges and exorbitant interest rates associated with plastic money. It is expected that a high percent of the bank customer pool would be open to using BNPL, given its almost instantaneous credit approval and zero-friction payment experience.

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Is BNPL safe?

The payment happens via a 1-click checkout option - No OTP, no CVV, No net banking. The final Bill can be cleared via any mode of payment, but BNPL purchases don't require OTPs. This is one of Simpl's USPs

Concluding thoughts of Mr. Nityanand Sharma

The universal goals of every digital payment mode are to ensure prompt transaction completion for merchants and deliver superior payment experiences for customers. BNPL achieves all of this and much more. Armed with a comprehensive database of customer purchases, buying patterns and payment records, BNPL can aid merchants with actionable customer insights for business strategies, give a fillip to digital-led purchase volumes and reduce overall payments fraud risk in the digital payments ecosystem.