Buy Now, Pay Later

Buy now, pay later (BNPL) services allow customers to purchase in installments, sometimes without paying anything upfront. BNPL options are called “instant financing” or “interest-free installments.”

Like any form of credit, BNPL could be a valuable tool if managed well. For example, if you make sure you meet the regular payment installments in full and on time, you can spread the cost of your purchases over weeks or months. This provides consumers with a flexible, interest-free purchasing option. But consumers should be fully aware of the risks of BNPL and how it compares to other forms of credit.

How doe BNPL work?

1. At the checkout page of your online store, you select your payment option as BNPL.
2. You would be taken to the BNPL site to create an account.
3. You must pass a “soft” credit check to complete the transaction. However, it is not affected by your credit score.
4. Once that’s done, you’re in. You can make your purchase without paying the total price upfront.

The BNPL provider you use will determine how many installments you will need to pay and how often you’ll need to pay them. Generally, this ‘contract’ is set up when making your purchase, and there are often different options for you to choose from – for example, you may be able to decide whether to spread your repayments over 3, 6, or 12 months.

Installments are like standing orders; payment is automatically taken from your card or bank account by the BNPL provider. So you don’t need to worry about manually making payments on specific dates, but you need to ensure that you have enough money in your account to cover the amount.

Advantages of Buy Now, Pay Later (BNPL)

• No interest charges: Most BNPL providers are typically interest and fee-free unless you are late on your repayments.
• Immediate Purchase: You can immediately pay off the debt in installments while enjoying your purchase.
• Convenience: Before digital payments took the mantle from traditional payment methods, comfort at the purchase was a critical factor for uptake. Earlier, a majority of shoppers used to abandon their shopping carts entirely. However, with the availability of BNPL as a payment option, checkouts are becoming more accessible and complete.
• Simplicity:  Simplicity is becoming a significant advantage for BNPL over credit cards due to their customer-centric approach to detailing terms and conditions. This is a stark contrast to credit cards, which generally mandate confusing times for the average consumer, charge surprise fees, impose high-interest rates, and offer terms and conditions that are subject to change.
• High Adoption Across Generations: Buy Now Pay Later offers consumers more versatility than traditional payment options. Flexibility and debt wariness of BNPL are driving shoppers’ decision making BNPL is becoming a preferred solution for purchasing things on credit.

Risks of Buy Now, Pay Later (BNPL)

• Damage to your credit score: If you are late with a payment or missed one, BNPL providers might send your details to a debt collector and credit agency, which could affect your credit score. Applying for many BNPL deals could also be a red flag for credit agencies.
• High interest and late fee charges: if you don’t pay what you owe on time, you could face a build-up of interest and late fee charges that you’ll need to bear in addition to your installments.
• The temptation to overspend: Spreading costs could be helpful, especially with high-cost ticket items, but the ability to spread the price could also tempt you to overspend.
• BNPL is an unregulated industry: there is no ombudsman service for BNPL like other credit or banking facilities, so if something goes wrong, you have no recourse or support to ask for help from the supplier.

BNPL: An Alternative Type of Debt

“Buy Now, Pay Later” is another name for debt since you still have to pay the total price eventually. If you are going to use a “Buy Now, Pay Later” service, make sure you:

• Understand what you agree to?
• Can you afford what you’re paying for?
• Know how and when you’re going to pay it back?
• Keep track of what you owe by setting reminders.
• Stay on top of your repayments.

As a general rule, it is suggested to use BNPL services when you can also afford to buy the purchase an item in cash and the total amount upfront. Of course, there’s nothing wrong with doing some shopping and buying yourself something nice, but there’s a big difference between spending your money to treat yourself and spending money you don’t have.

In India, BNPL is offered by banks like ICICI, HDFC, and other financial institutions. For example, ICICI Bank provides ICICI Pay Later, and HDFC Bank offers FlexiPay. Big e-retailers also offer BNPL facilities like Flipkart, Amazon, Zomato, Big basket, Make my Trip, etc. These e-retailers tie up with BNPL service providers like Lazy Pay, Flexpay, Paytm Postpaid, etc.

The market for BNPL is growing at a very high rate as this facility brings aspirational and costly products within reach of buyers, especially the young generation.

Conclusion: Why is the Buy Now Pay Later Concept a Game-Changer for Retailers?

The Buy Now Pay Later Concept is a game-changer for retailers. It can be an opportunity to grow their business and take it to the next level.

Buy now, pay later is a concept that has been around for centuries. It’s simple: you buy a product today but don’t have to pay for it until later. This is beneficial not only because it’s just an added source of revenue but also because it can lead to more customers and, as a result, more revenue for the company.