The advent of Buy Now, Pay Later services has revolutionized consumer behavior and financial markets in India, marking a paradigm shift in how individuals and businesses engage with credit and commerce. This innovative financial tool has rapidly gained traction, driven by the increasing digitalization of the economy and a burgeoning preference for seamless, cashless transactions. By democratizing access to credit, BNPL has not only transformed spending habits across various demographics but has also played a pivotal role in enhancing financial inclusion. Transformation of Consumer Behavior BNPL services have significantly increased Indian consumers’ purchasing power by providing flexible payment options that reduce the financial burden of immediate expenses. The Indian BNPL market is expected to grow at a CAGR of more than 45%, reaching USD 45-50 billion by 2026. It has also significantly accelerated e-commerce growth in India, transforming consumer purchasing behavior. Major e-commerce platforms, such as Amazon and Flipkart, have included BNPL options, making high-value items more accessible to a wider audience. These services not only improve customer convenience, but they also increase average order values, contributing to India’s overall e-commerce growth. The BNPL services have profoundly transformed spending patterns and bolstered financial inclusion in India. This rapid adoption has been driven by increasing digitalization and a growing preference for cashless transactions, especially among the younger population. BNPL services have democratized access to credit, with many prominent fintech platforms enabling consumers to make purchases without immediate full payment, thereby facilitating smoother cash flow management. Notably, BNPL transactions have surged across sectors such as e-commerce, travel, and healthcare, with e-commerce witnessing a 55% increase in transaction volume in 2023. This growth has been crucial in extending financial services to underserved segments, as BNPL platforms typically feature simpler onboarding processes and lower credit barriers compared to traditional credit systems. For instance, in rural areas, BNPL has empowered small business owners and consumers to access essential goods and services, thereby fostering economic participation and growth. Implications for Financial Markets While BNPL presents significant growth opportunities, it also introduces risks, particularly related to credit defaults. The ease of access to BNPL services can lead to over-borrowing, especially among consumers who may not fully grasp the implications of deferred payments. This has raised concerns among regulators about the potential for increased debt levels and financial instability. The Reserve Bank of India has acknowledged these risks and is contemplating regulatory measures to ensure responsible lending practices. Implementing guidelines and oversight will be crucial in maintaining a balance between fostering innovation and protecting consumers. BNPL is revolutionizing traditional lending models by providing an attractive alternative to credit cards and personal loans. This disruption is compelling banks and other financial institutions to adapt their offerings to stay competitive. As a result, many are now partnering with BNPL providers or creating their own installment-based products to capture a share of this rapidly expanding market. The integration of BNPL solutions into their portfolios is not only a strategic response to changing consumer preferences but also a proactive measure to retain customer loyalty and drive growth in an evolving financial landscape. By and large, the future of BNPL in India will depend on how well the challenges are managed and how effectively the sector adapts to regulatory developments. As BNPL continues to evolve, it holds the potential to redefine the financial landscape, driving economic growth and improving the lives of millions of Indian consumers.
Tag: bnpl
iServeU; Serving the Rural
India’s Rural segment amounts to approximately 900 million individuals and massive scope of work. The Government of India (GOI) and financial institutions are working tirelessly to bring the said underserved market on a symmetrical platform of inclusivity. In recent years, financial institutions have been able to reach deep rural areas of India by leveraging the rails set by the government, for instance, UPI Lite and 123UPI. The said improvement can be noted in the growth of the Financial Inclusion Index which grew from 53.9 in 2021 to 56.4 in 2022. Fintechs or upstarts have been active participants in this master plan. By combining technology with finance, Fintechs are making their way through various obstacles. By designing products and literacy programs apt for the target audience, they are promoting financial inclusion, freedom and empowerment. iServeU, a Niyogin subsidy, aims to power the rural segment through its Rural Tech platform. By implementing its distinguished idea of leveraging existing infrastructure and physical distribution channels, iServeU partners with business correspondents who onboard local retail stores or Kirana stores. This approach makes the intention of financial inclusion achievable as penetration into the market through trusted sources of the said community is easier. At present, iServeU has successfully impanelled more than 3,00,000 kirana stores spreading across 25,000 villages! The intention of embracing such a distinctive method of reaching out to the rural population is the need to reduce costs. By leveraging the existing base, iServeU sizeably reduces its operational, customer acquisition and go-to-market costs. By collaborating with partners, business correspondents and agents while equipping the impaneled retail stores with frictionless and easily accessible banking, financial and payment services, iServeU opens a world of financial services to the rural population. As the diagram projects, iServeU’s product stack comprises of Aadhaar Enabled Payment System (AePS), Micro-ATM, Bharat Bill Payment System (BBPS), Domestic Money Transfer, Transaction-led credit and Microinsurance. These products are offered to the rural population through impaneled retail stores and facilitated by allied banks. In this entire process, third party or business correspondents play a major role. iServeU empowering stakeholders The Rural Tech platform empowers its stakeholders by offering – Income augmentation to Retailers Network monetization for Partners Optimize market access and product delivery for Banks Customer-centric approach that enables a tech-driven environment for the Customers Impact on the Rural areas as a whole Empowering Micro-businesses through micro-credit iServeU’s entire product service activity is digitally driven. Range of Products Aadhaar Enabled Payment System (AePS) Considering a significant chunk of individuals residing in rural areas have limited access to education and therefore find it difficult to adapt to the concept of digital transactions, iServeU presents them with an opportunity called AePS. Through fingerprints or an Aadhaar card, individuals can now make quick cash withdrawals, make balance inquiries and much more. Micro-ATM (m-ATM) An equivalent of AePS, m-ATM allows individuals to withdraw cash and enquire about their bank balance. However, in this case, they require a debit card. iServeU equips its impaneled Kirana stores with an android app that has a card reader embedded within to make these transactions possible. Bharat Bill Payment System (BBPS) By onboarding over 100 recharge and bill operators, iServeU ensures the rural population can go digital while making payments. It lets them digitally make instant mobile, landline, electricity, broadband, water and gas bill payments. The interconnected bill operators ensure that these services are automated and uninterrupted. Direct Money Transfer India has about 450 million internal migrants and Domestic Money Transfer is an intrinsic part of them. Migrants often rely on unmonitored methods of money transfer and therefore are often scammed by intermediaries. iServeU offers a regulated method, i.e., Domestic Money Transfer service to migrants where their money is transferred to their family members securely. Furthermore, the elimination of an intermediary has played a big role in limiting fraudulent activities. Micro-credit In terms of micro-credit or loans, rural areas are severely underserved. Owing to the lack of accessibility coupled with the risks associated with rural lending, financial institutions are apprehensive to venture. However, 52.3% of the total MSMEs are hosted in rural areas making the said audience a potential target audience. Taking this as an opportunity, iServeU now offers micro-loans to businesses in rural areas with limited access to financial services. Micro-insurance The rural population majorly falls in the low-capita income threshold along with having limited financial literacy. This makes it impossible to weigh them at par with services offered to the urban market. iServeU offers the rural market micro-insurance where they can insure their assets at affordable prices from trusted sources near them. iServeU’s growth chart Partners iServeU has developed manifolds in the past years and currently holds a retailer network of 2,46,853 individuals. The Gross Transaction Value (GTV) of the Rural Tech platform was C 87.2 billion in FY22, up 51% YoY from C 57.6 billion in FY21. The overall growth in iServeU’s model planning, partners, retailers, etc., indicates a positive trajectory further toward complete financial inclusion!
Lending as a feature in the future
Lending has been a fundamental mean of money circulation in the economy. Over the years, we have seen a remarkable shift in how lending is undertaken. The shift from physical to phygital to digital has been massive and we are still evolving! In the past, lending was an independent process that had rigid prerequisites. Owing to technology, the approach has transformed and at present, financial institutions are devising ways to disburse loans within minutes. What created value in the past? The past two decades of value creation in the lending business has been through a focussed execution of time tested formula of raising Current Account Savings Account (CASA). Traditional banks focused on individuals with the capacity to deposit money with them thereby creating value. This deposited money is then circulated in the market as ‘loans’. In the individual lending area, customers plan their purchase and then hunt for the right lender to borrow yet, retail lending, through the cycles, has been the biggest value driver for banks in the lending business. However, this approach is set to change in the next decade or even earlier. For instance, Buy Now Pay Later (BNPL) is changing how customers function. Financial institutions are offering immediate credit to individuals transforming the entire ‘plan your purchase’ notion. Why is it going to change? Customer engagement- Customers view banking tasks as a standalone activity and use banking facilities for specific tasks. Not all banking activities are embedded in the transaction flow and this is likely to change in the coming future. Customer experience- Banks have largely replicated branch processes into digital workflow with no real change in the first design principles of banking service delivery. With upstarts emphasizing on customer journey, customer experience will be heavily emphasized upon. Data- Banks possess legacy transaction and customer data making them work on stale financials. This approach is likely to transform with a change in workflow owing to technology, innovation and customer demand. Asset Quality- With better positioned platforms to judge capability, banks have the intent to innovate and will eventually indulge in the following to transform- Banks do not have dynamic propriety transaction data and democratisation of access to static data with account aggregators and OCEN can help banks maintain asset quality. Platforms that are used by customers are not only to offer better CX but will also be in a better position to judge capability with bank’s own transaction data. Platforms will be able to feed the credit to drive purchases and transaction on their own program. What will be the impact of emergence of new business models? With emergence of fully integrated financial services model of manufacturing (banks), digital platform and customer acquisition will be unsustainable with rising CACs and no differentiated value proposition from banks. Business models will segregate and specialize into manufacturing (banks), platform infrastructure and customer front ends. For instance, Zomato, Udaan, Amazon etc. have already integrated and offer an end to end platform. The opportunities associated specifically with business models are- While platforms and customer front ends are quickly moving to adopt lending as a feature, regulatory guidelines and the obsession with leading current manufacturers (banks) is leading to almost no players constructing this. Platform (API) Infrastructure players enabling any/all companies to offer financial services products The likely outcome – Lending to become a product ‘feature’ With infrastructure development, customer ownership and engagement is shifting to platforms. Retail Lending will be embedded in the transaction flow. Every tech platform with customers/sellers will offer lending as a ‘feature’. Reasonably priced embedded credit at the time of transaction to be part of customer experience and product proposition. Conclusion Infrastructure plays a very critical role in the given scenarios and their achievement. Embedding ‘lending as a feature’ on all platforms will require a robust and secure infrastructure and platform wherein customers have a seamless CX.