BNPL, or buy now, pay later, is a buzzword these days. The existing BNPL market in India is worth $3 3.5 billion -- Rs 26,250 crore and is expected to grow to around Rs 45-50 billion about Rs 3.37 -- 3.75 lakh crore by the year 2026, according to consultancy firm RedSeer.
The industry is anticipated to grow on the back of millennials and self-employed people who don't have access to formal credit history. Given the huge untapped market, the BNPL players are eyeing this immense opportunity, especially when India's credit card population is only limited to 67 million, while banks focus only on top 100 million people.
There are two types of digital BNPL players in the market -- payment finance and transaction finance. You don't need to pay only one bill after 15 days if you want to add credit cards or money to your wallet or wait for a one-time password OTP. Transaction finance, on the other hand, allows large-ticket purchases in small EMIs.
Pay later, an evolving payment trend in India, comes in two avatars to serve the two distinct purposes of convenience and affordability. Deferred payment is a low ticket size solution that is used by consumers for convenience so they can enjoy experiences and avoid the hassles of upfront payment with every transaction. This is an interest-free payment option if you pay within the 15 day repayment cycle, as followed by Lazypay. BNPL for affordability is a large-ticket solution that is used by consumers looking to buy desired products or services without any delay and pay later in small EMIs. The EMIs range from 3 -- 12 months with zero to minimal interest, says Anup Agrawal, Business Head at LazyPay.
There is no standard practice followed by BNPL players, and hence the charging structure varies from company to company. There are several risks that come from hidden costs, lack of disclosures and transparency, and a new-to-credit population with no credit history.
Here are some general charges you should know before opting for the BNPL facility:
Processing costs: Digital BNPL players charge anything between Rs 0 -- 99 for loans.
Late payment charges are a requirement for borrowers to pay late payment charges until they clear their dues. For example, Flipkart's Pay Later charges late payment charges from Rs 60 -- 600 for bill amount ranging from Rs 100 to Rs 5,000 and above. Users are charged a penalty of 15 Rs per day in case of LazyPay.
Interest rates are important to understand that different companies have different charging structures in case of late payment. Some may be charging late payment charges, but others may be charging interest ranging from 2 -- 3 per cent per month. Payment companies like Paytm charge customers 3 per cent interest on outstanding amount for extension of due date by a month.
If you plan to close the loan before the scheduled period, a prepayment charge may be imposed by BNPL players. For example, the pre-closure of the FlexiPay service of HDFC Bank attracts a charge of 4 per cent on the balance principal outstanding plus GST at 18 per cent.