One of the fastest-growing segments in consumer finance is BNPL (Buy Now Pay Later) firms. A market segment that was worth 33 billion USD in 2019, according to GlobalData, had grown to 120 billion USD by 2021. The business model of BNPL firms emerged from extremely low-interest rates that allowed these firms to raise funds at low cost and offer point-of-sale loans to customers on online shopping websites.
Amid the Covid-19 pandemic, millions of Indians took advantage of eCommerce as online shopping gained a stronghold. Many of these shoppers did not own a credit card and opted for interest-free credit facilities at checkout points. To cater to this rising demand, online platforms and facilitators, who are mostly fintech firms like ZestMoney, LazyPay, Simpl, Pine Labs, and Capital Float, were willing to undertake the risks.
The Growth of BNPL
As the economy slowly opened with restrictions, after the severe Covid-19 lockdown, the oncoming festive season of Diwali saw eCommerce firms like Flipkart and Amazon offer various fintech and credit products to make buying more affordable for their customers. In a bid to widen their customer base, these eCommerce sites made these offers available in Tier 2 and Tier 3 cities as well.
Rajeev Kumar K, Senior Vice President, Market Development, South Asia of Mastercard said - “To encourage sales this festive season and making products more affordable for consumers, merchants are partnering with banks to come up with varied co-branded cards. For instance, Mastercard has a co-branded card with Flipkart and Axis Bank that offers higher reward points, cash backs and other benefits on making card purchases at partner brands.”
Backing this statement was Vikas Bansal, Director of Amazon Pay, who said, “We have definitely ramped up the coverage of our EMI-based credit products to help customers with affordability, keeping their monthly budget in control. Debit-card EMI will be a critical product for Tier 2 and 3 buyers this festive season. We have also increased the down payment cycles from 6 months to 9 months for credit card holders.”
He further went on to say that no-cost EMIs accounted for two-thirds of all EMI purchases on Amazon in 2020. Amazon launched the ‘Pay Later’ product in April of 2020 and by October of that year had already offered more than 10 lakh loans.
By 2021, consumer sentiment seemed to be peaking in light of higher vaccination rates. Indians were shrugging off the impact of a second wave of the coronavirus, which gave companies the confidence to look forward to a bumper festive season in 2021. This optimistic outlook was aided in large part by the flexibility to pay later.
The BNPL market size in 2021 was worth USD 132 billion which is expected to grow at a CAGR of 45% and reach an estimated value of USD 3680 billion by 2030.
BNPL and Diwali Sales
The Buy Now Pay Later concept continued to grow during the festive season of 2021 with multiple eCommerce players seeing disbursals growing by more than 100% in comparison to the festive season of 2020.
LazyPay, the BNPL platform of Prosus-owned payments major PayU, saw a rise of 300% in credit demand, particularly in segments like travel, food & beverages and entertainment.
Anup Agrawal, Business Head at LazyPay said, “We also saw an uptick of 70 per cent in user acquisition in the last two months. Around 60 per cent of the demand is from tier-2 and tier-3 cities, specifically outside of the top 10 cities in India, while the average age of consumers is 26-27 years.”
Prateek Jindal, Co-Founder and Chief Product Officer of Uni, a BNPL startup, said they saw a 100% increase in their transactions, both in volume and value, within the first four months of beginning operations.
He went on to say, “We are currently doing more than Rs 100 crore of monthly disbursals and the peak spend per day in the season was 200 per cent higher than the average.”
Lizzie Chapman, Co-Founder and CEO of the Bengaluru-based startup, ZestMoney, confirmed that the company added 5x new customers in October of 2021 and intended to cross a gross merchandise value of USD 1 billion in the financial year.
The eCommerce giant Flipkart too joined the bandwagon and raised the credit limit of its pay later service from INR 10,000 to INR 70,000 in September 2021, ahead of the festive season. For Flipkart, this move proved hugely successful as they witnessed a 4x increase in the number of transacting customers opting for Flipkart Pay Later.
A company spokesperson said, “India is traditionally a credit averse market and the Coronavirus (Covid-19) pandemic’s impact has increased reliance on credit solutions. Access to credit is a key unsolved need for Indian customers who want to manage their expenses, while also fulfilling their aspirations.”
BharatPe, the fintech unicorn, launched its BNPL platform PostPe and saw a daily average disbursals grow by 2X reaching INR 6 crores within the first two weeks of launch.
Suhail Sameer, CEO of BharatPe said, “The top spends were in categories like cabs, QR transactions at grocery or small retailers as well as electronic purchases- these are ones that witness a spike during the festive season. We expect the numbers to stay steady post festive season as the awareness for the product has grown manifold in the last one month.”
Most of the eCommerce players witnessed an increase in spends on categories like apparel, electronics, grocery, cosmetics, and food delivery.
The payments company, Ezetap integrates BNPL with point-of-sales machines and at the checkout of eCommerce platforms. Ezetap recorded a 73% increase in Pay Later transactions volume and a 136% rise in transaction value during 2021 Diwali. It also recorded a 3% rise in the average ticket size of BNPL transactions.
The trending surge of BNPL shows no signs of slowing and is likely to grow exponentially in the coming months and years. The oncoming Diwali season is showing an increased demand for BNPL as consumers are eager to indulge in high-value shopping with the Pay Later options readily available on most mega eCommerce platforms.
What is BNPL?
BNPL, short for Buy Now Pay Later, is a financing option that enables customers to buy a product or service and pay for it later within a specified interest-free period.
What is the best BNPL in India?
Some of the top BNPL apps in India are:
- Amazon Pay Later
- Flipkart Pay Later
How does BNPL help push eCommerce sales during Diwali?
BNPL plays an important role in pushing eCommerce sales during the Diwali season. It gives customers more control over how and when they want to pay for their products or services. This leads to a better customer experience which in turn helps in increasing sales.