An Emerging Game-changer is Shifting India’s Fintech Landscape

Sep 15, 2021

Buy-Now-Pay-Later gains traction in the digital marketplace 

By Suroopa Chatterjee


The growth of the digitization process subsequent to the “Covid 19 era” has ushered in transformations in e‑commerce supported by digital financial services. Consequently, fintech companies have seen a rapid rise in innovations to provide customized solutions for end users and help companies strategically occupy a place in the market.

Over the past few years, the Indian government has also come out with initiatives at the national level to centralize different digital payment methods. The Fintech sector saw considerable support in the recent budget announcements, which mentioned schemes to develop, promote and accelerate digital payments, in wake of a steep rise in online and contactless payments during the period of lockdowns.

According to KPMG’s bi-annual Pulse of Fintech report, despite battling the pandemic challenges, India witnessed the second best year for fintech funding – attracting 2.7 billion dollars in investment in 2020, the second highest after the 2019 peak of 3.5 billion dollars. The report also stated that fintech investors adjusted their strategies in the second half of 2020, moving away from early stage companies and lending based businesses and towards later stage companies.

As per a published report, Sanjay Doshi, Partner and Head of Financial Services Advisory at KPMG, India stated, “Many banks in India are now going down the path of digital”. He also added, “They are looking at tech and fintech companies that can help them to move their digital activities forward, either investing in them directly or using them as service providers. That is going to be a big growth area for investment here — banking-as-a-service platforms.”

Along with payments and platform models, B2B solutions are likely to be a very active global investment area in 2021, this will also include embedded finance and ‘buy now, pay later’ solutions.

Within the shifting landscape of online shopping experience, customers have gone online where BNPL has emerged as a popular payment method for consumers, changing the dynamics between e‑commerce sites and their customers. BNPL has been in the news all the more since the pandemic. Recently, US fintech giant Square, announced an all-stock acquisition of BNPL leader Afterpay in a $29 billion deal. First introduced in Australia in 2015, Afterpay allowed users to pay for their online purchases with easy payments and limited credit checks.

BNPL seems to be the language of future payments, especially for developing markets like India.The scheme suddenly saw a surge in preference from millennials as it allowed them to avoid credit and provide them space for cash flow.

Diving deeper into the subject, BNPL is an acronym for buy-now-pay-later financial services, which offer customers a longer time to pay for a purchase with no extra interest. The payments have to be made anywhere within 30 days or up to 12 months depending on specifics set by the service providers. Some of the leading BNPL players include: ZestMoney, LazyPay, Simpl, Amazon Pay, and Paytm Postpaid.

U.S. Affirm Holdings Inc was also in the news as there was a 43% surge in its shares following its recent partnering with Inc to make its BNPL service accessible to certain customers using the popular e‑commerce site.

The advantages of BNPL is its convenience, speed, ease and of course interest-free terms with extended payment plans serving as an alternative to credit cards. The BNPL providers earn from a transaction fee they charge the online retailers or businesses. On the flipside, a few experts say that BNPL users tend to overspend and incur charges for late payments.

According to a published report, with an initial global value set at US$7.3 billion in 2019, the BNPL market has accelerated in the second half of 2020 and is estimated to reach US$33.6 billion by 2027. The Asia-Pacific region, with approximately 400 million internet users, is seen to have immense potential in this sector with India and Singapore viewed as the highest.

In India, BNPL acts as a bridge between the gaps in consumer lending. Out of a total of 900-million registered bank account holders, only 33% are actual credit card holders. This spells a massive opportunity for BNPL as people are reluctant to use credit cards owing to hidden fees and high interest rates.

Commenting on the sector in an earlier statement, Arun Pai, Chief Sales and Strategy Officer at FLOW (Asia Collect) which is an ethical credit management company, stated that during the ongoing pandemic, BNPL players have allowed consumers to have a greater range of flexibility with their purchase decisions without the high interest rates often associated with credit cards. While BNPL services continue to grow and change the credit system in India and globally, it all comes down to financial discipline and the decision.

For India BNPL is proving a huge draw for e‑commerce companies like Flipkart, Paytm, Amazon and Byju’s — especially in view of the string of upcoming festivals when purchases are high. According to published statements, industry experts say that India’s annualized BNPL market in gross transaction value terms has grown to around $1.5 billion-$2 billion within 18 months from just a few million since the outbreak of the pandemic, which changed customer buying patterns.

Flipkart is facilitating BNPL transactions through subsidiary Flipkart Advanz. Amazon has tied up with Capital Float, a non-banking financial company. Paytm has tied up with Aditya Birla Finance to offer BNPL as part of its Postpaid service. In the edu-tech sector, Byju’s and Unacedemy have tied up with Lazypay and Capital Float for its consumer base.

In an effort to widen their customer base, banks are also adapting the BNPL model of fintech for their customers’ shopping experience. Some are trying to increase their scope of debit card EMI facility for larger purchases. In a March report, FIS, a fintech solutions provider, gave a statement that BNPL is the fastest growing online payment method in India, albeit accounting for only 3% of the market presently. According to the report, BNPL will emerge as the fastest growing online payment method (53% CAGR) and triple its market share to 9% by 2024. Also bank transfers were found to be declining slowly as mobile wallets grew.

Axis bank is offering a monthly easy payment option to customers through its recently introduced BNPL product. This is essentially for new bank customers and other bank customers through its subsidiary Freecharge. In a statement given earlier to Financial Express, Sameer Shetty, President and Head of digital business and transformation at Axis bank, said that it’s a way for lenders to extend credit to people it would otherwise be unable to lend to as well as to those who see this as a convenient way of paying at checkouts. He further added that it was their view that BNPL is a great way to build a funnel for credit cards and personal loans. If somebody did well on BNPL, that person would get a credit card, having shown some repayment behavior which gave some level of assurance to the bank.

ICICI bank’s PayLater product is a digital facility specifically targeting customers between 25–30 years of age. The bank’s EMI on debit card option is predominantly designed for younger customers although it’s open to other age groups. PayLater pulls customers into the credit space, allowing accruing of credit scores, and this helps them build up to more substantial credit for things like home loans.

Recently PayU, owned by Prosus, has been looking to make a very expensive acquisition in an effort to co-create new solutions with BillDesk, exploring to integrate with it. This would make PayU-BillDesk take a lead in the B2B payment space in India with a 50% share of online payments. It is now focusing on the insurance and brokerage sector to complete its financial offerings.

In an interview given recently, Anirban Mukherjee, the head of PayU India, stated that once the deal is complete, PayU would be working with BillDesk founders to lay out an overall plan. BillDesk has proprietary payment rails with many banks. There is a lot of scope on financial services. Also BNPL could be one of the checkout options for BillDesk merchants. According to Mukherjee, PayU’s strategy in India is threefold: it wants to build a large space for payments, innovate in digital credit, and provide complete service in the financial ecosystem.

BNPL has opened new routes for financial opportunities but both borrowers and lenders need to take care when it comes to certain aspects. For borrowers, BNPL is after all a loan and one should take care of timely repayment. Providers need to be focused on repayment behavior and report to credit bureaus on delay. At the end of the day, customers have to be mindful about repayment to earn a good credit score.

recent focus