Buy Now Pay Later- A Business Rising From Good To Better

In today’s world, technological advancement has brought a major change in consumer behaviour and purchase habits while online and digital payments have become extremely popular with consumers. Now, Buy Now Pay Later (BNPL) has caught the fancy of consumers.

According to recent global survey almost 57 per cent consumers strongly felt that BNPL has the potential to replace credit cards. Consumers in Norway, the Netherlands, Germany, China, Indonesia, and, Australia are using it the most, though it is still in its nascent stage.

Indian consumers are not yet fully accustomed to it, and are relying more on credit cards, debit cards, and, traditional banking, the survey titled Global Insights Report.

However, looking at the popularity and adaption of this practice, recently, the Reserve Bank of India brought out its regulatory axe and hacked away at a popular path to small-ticket fintech loans.

According to the new guidelines issued by the apex bank, nonbanks can no longer load prepaid instruments — digital wallets, or stored-value cards — using credit lines. The only valid options for a buyer are to prefill their wallet with cash, or to debit their bank or credit-card accounts.

Other than India, UK government has also strengthen the rules on BNPL loans to ensure that lenders carry out proper affordability checks and don’t entrap unsuitable borrowers with unfair, over-the-top advertising.

In the backdrop of new guidelines, many fintech firms have stopped the BNPL services. According to the RBI, the new credit instruments could result in systemic risk. The new-age fintech firms are using lines of credit from banks and non-banking financial companies (NBFCs) to load customer wallets.

The bank regulator is apprehensive about a lack of due diligence while loading the PPIs through credit lines.

Start-up like PayU, LazyPay have temporarily halted its buy now pay later product. It was launched in September 2020 and it was issuing credit lines upto INR 1 lakh to the users.

Yashraj Bhardwaj, Partner, Petonic Infotech expresses views on the matter and says that the restrictions might result in a systematic path creation but for now, it has disrupted the industry.

In an exclusive interview he answered the following questions.

What disruption is there in the industry after the RBI norms over BNPL?

Bhardwaj: The knee-jerk reaction over BNPL may create disruption not only for the existing players but also for the consumers. As the RBI guidelines are issued to only the non-bank PPI issuers, this leaves a question mark for bank-led PPIs.

What solutions are there for NBFCs and other fintech companies?

Bhardwaj: While many industrial players want reconsideration over the blanket restriction, there are others who are looking at partnerships with banks to make a decisive move and go with co-branded collaterals.  

How the finance industry has been affected by this move?

Bhardwaj: With a projection to rise to 8.6 per cent of e-commerce market value by 2025, BNPL is considered to be India’s fastest-growing online payment method. Everyone knows this is a revolution in the Finance Industry. And with these restrictions there has been a sudden blow to the industry as a whole. While eventually, it might result in a systematic path being created; right now it has disrupted the industry.

How customers are affected by the development?

Bhardwaj: BNPL majorly catered to the segment of people who did not own or use a credit card. It enables consumer’s instant access to credit but it also emanates risks. Once clarity is attained over the RBI guidelines, it will surely be in favour of the customer.

Why are these companies who are engaged in this practice refraining their selves from commenting on the issue? 

Bhardwaj: The RBI guidelines came into force to ensure no potential systematic risks exist in the financial sector.  There are many unregulated entities that may be involved in conducting fraudulent practices in the segment for whom commenting without clarity would not be favourable. In my opinion, they are going to wait and get their game on point before taking a stance publicly.