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BNPL – Buy Now, Pay Later

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What is BNPL?

Buy Now Pay Later is shortly termed as “BNPL”. It is a payment option which encourages you to buy/consume the products/services, without having to pay for it immediately. You are allowed to pay the loan without interest, if you repay it within a specific period of time. It helps in offering small value loans to a large set of consumers, without checking their credit score in many cases. Since the beneficiaries are huge and loan value is small, it mitigates the risk. It also provides a large number of leads to a lending house who will further extend their services for high value loans to its members, post checking their credit score. However, after the interest free period, total repayment of loan is expected. Otherwise, the interest will be calculated from the original time of purchase and charged back to you. BNPL also offers flexibility to pay back the loan via No cost Equated Monthly Installments (EMIs). Since few countries implemented a strict process to offer BNPL, If the payment was not made on time, it could impact your credit score harshly. 


Roles involved in BNPL ?

Lender
A lender who uses a third party BNPL provider as a payment option who pays on behalf of the customer and receives payments from customers from a future date. 

You may have a question What benefits may Lenders have? 

They can have benefits at checkouts like: 

  • High sales – They offer multiple payment options like BNPL where it helps to increase sales and encourages the borrower to buy more products. 
  • Increase order value – The more borrower order product individually, the higher the amount and the better for the lenders. 
  • Raise customer lifetime value – When borrower purchase products from an online platform repetitively that offers a BNPL payment facility, it means the Lenders has been able to satisfy customer needs.  

BNPL Provider 
In the BNPL transactions, the provider pays the lender at the time the transaction occurs on taking  the responsibility of granting credit and collecting payments from the customer over the course of BNPL term. 

BNPL providers make money from borrowers by charging an interest between 10% and 30% based on credit score, repayment tenure etc. Also, by charging a late fee for borrowers who may not able to repay the amount within the period.  

Borrower
Borrowers are the ones who can enjoy the short-term credit offered through BNPL providers even without a credit history. They have to repay the amount in a specific period of time otherwise late fee will be charged. 

Consider a buyer who intends to purchase a product worth $100 but was given an option to instead pay $25 every two weeks for eight weeks. That may help consumers to purchase more products. 


How it works?
BNPL programs are not all exactly the same, each company has its own terms and conditions. Here’s how it usually works: 

  • You make purchase at a participating retailer and opt for BNPL at checkout. 
  • Fill in short forms where it contains personal details like Name, Date of birth, Address, Phone number etc.  
  • If approved, you make a zero payment or small down payment of the overall purchase amount
  • You can repay the entire loan or pay the remaining amount in the series of EMIs, cheque or bank transfer. 

(Note: Payment can also be deducted from your debit card, bank account or credit card automatically) 


Pros and cons: 

PROS:

  • Good credit / High score is not necessary for eligibility on approval 
  • Zero interest or Lower interests than credit cards 
  • Instant access to credit 
  • Increases affordability 
  • Simple and convenient way to pay for purchase over time 

CONS:

  • No reward or cashback like credit cards give 
  • Payments may continue even if the product is returned 
  • Missing payments lead to late fees and lower credit scores 
  • Encouraging impulse spending 
  • Not all retailers accept BNPL 


BNPL – Future of lending?

BNPL purchasing is booming. Today, it is considered as one of the fastest growing payment methods. 

BNPL is often promoted as a friendlier way to spend without racking up credit card debts, where it grabs the center of attention by giving zero interest rate by fintechs , with merchants paying fee to lenders instead. 

Providers are entering partnership with well-known, large retailers and consequently acquiring users from their massive customer base. They will also expand into other products and services rapidly. 

The future of BNPL looks good provided the customers are able to use it properly and make the payments on time. 

Conclusion 
For those who need something immediately, but do not have sufficient funds, BNPL is the best option and it offers simplistic credit solutions for users to better manage their purchases and expenses.  

Controlled and disciplined usage is key to maximizing its benefits.