The rise of ‘Buy Now Pay Later’
Changing consumer behaviour and learning from it is one is the most interesting things in Design Research. The introduction of certain products and its adoption over time, allows one to learn of changing behaviours and constantly adopt and innovate for it.
Some of these are completely new behaviours and some add on to their existing behaviours. Time and again there are products that causes a substantial change in behaviour and the way the customer does the tasks.
The financial inclusion space in India is a very interesting space to observe the changing user’s behaviours.
Cash on Delivery, Paytm Wallet, UPI are few examples of behaviour changing products and services in the recent past.
In this article, I speak about one of the new trends of Buy Now Pay Later.
Growing up, a constant message in retail shops was that of “aaj nagad, kal udhaar”, meaning pay today, tomorrow you can take credit.
The goal was to work mostly in cash and not pile up too much of credit (customers).
To be eligible for credit, a customer had to be highly creditworthy, have a high trust value, and often a certain positioning within society.
Of course tomorrow never came. The customer ended up either paying upfront, or decided not to buy things by quelling their desires.
There were multiples forms of the same. And when you looked at the small sellers that were mostly cash driven, providing credit was a non favourable option.
With the growth of online shopping across the country and better access to consumer data, there is a rise in providing credit to the end customer.
Now, ‘Buy Now Pay Later’ is set to become fastest growing online payment method in India, according to a recently published report .
Currently, the method holds 3 per cent share and is expected to grow at 53 per cent compounded annual growth rate (CAGR). BNPL services are post-purchase payments allowing consumers to make payments in interest-free installments or pay off the invoice after a determined period.
While BNPL is still in its nascency, it could reverses the behaviour trend that used to be a norm in India.
Major online retail outlet offers this to creditworthy customers already and more will follow suite. With better information about customers, and collection mechanisms, the lending channels will work towards providing more capital.
Substantiated with more choices of credit such as BNPL, the end customer is bound to have a change in behaviour.
So while, earlier establishing the trust took months and often years earlier, today it is all possible to do faster with the access to data. The monthly credit lines becomes active, only after the trust is established.
Out time to establish trust is has reduced drastically.
A few transactions, a credible track record, and we are good to go.
Earlier, credit meant mostly in smaller retail shops and were confined to the regular stuff like groceries. BNPL is playing out in different categories and online (digital) shopping is driving it due to available data on customer history, purchase capacity etc.
While there have been multiple movements and behaviour changing mechanisms in India, like the rise of credit card adoption, the rise of EMIs etc, in the past; this one is different.
The decline of ‘Cash on Delivery’ is also evident and most merchants and retail outlets do not offer it anymore. Cash on Delivery played a crucial role in the expansion of e-commerce and online shopping in India.
A factor that favours the rise of BNPL is the smaller ticket size. People wanting to take credit for purchase but then not a high amount like the EMIs that was to break up a larger size into smaller monthly payments.
This is causing a mindset shift in the buyer as well. Like taking a small credit on BNPL instead of a large credit on EMI. So my guess is that BNPL will have a faster adoption than EMIs. Smaller amounts also means that the risk taking appetite also is higher. It’s less riskier to take a BNPL option of Rs 5000, vs taking a credit card loan of Rs 100000.
A lot of the availability of credit is owing to the better amount of customer data we have and the better predictability we can do.
The one goal for any credit system that is built is to reduce the cases of fraud and be able to track irregular usage. With a lot of the financial transactions moving digital, there is a permanent record that is created. That data points enable us to do better profiling of customers and predict the ones who will pay back, or will be likely to fraud.
I recently read this book Prediction Machines, on the same lines.
The more we advance our systems in the digital world, the more data we collect. And the more data we collect, the more it enables us to predict better.
All artificial intelligence and machine learning is towards enabling better predictions.
With the fact that we have so much data about consumer behaviour, their transactions history, their purchases, their preferences, we can make a fairly good prediction.
However, as it says, it is still a ‘prediction’ and there will always be an element of uncertainty in the predictions.
BNPL could changes retail spending just the way EMIs did.
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In the next article on the series, I speak about the rise of Lending in India and the evolution of the Lending ecosystem.
#financialinclusion #fintech #india #finsights #fondesan
