'Buy now, pay later' model gains traction as COVID-caused income uncertainties continue

It provides a small line of credit to consumers, acting as micro finance alternative

digital-payment [File] Representative image

The COVID-19-induced lockdown, salary cuts, uncertain incomes and job losses have helped the concept of 'buy now, pay later' gain popularity in India. With a majority of customers opting for online shopping due to safety measures, this concept is expected to get further headway.

The other aiding factor for this business model is the sense of easiness offered due to one stop purchase and payment solution. Some experts say it is a digital version of the age-old concept of 'khaata' (a tab or ledger), and may enable customers to enjoy a seamless buying experience without having to disclose their bank details or frequent ATMs for cash.

“The 'buy now, pay later' concept can be used to order food, essentials, etc. where one can buy things now and pay the collated amount later. Additionally, it also provides a small line of credit to consumers, thus acting as a micro finance alternative, which provides interest-free money to buyers and allows them more time to arrange money. Hence, this concept compliments the three Cs of e-commerce business foundation—credit, convenience and cashless. This adoption of digital 'khaata' , according to me, will quickly gain traction in a country like India and although the shift is gradual, it would be permanent and will play to the industry’s benefit,” Sourjyendu Medda, founder, chief business officer and chief finance officer, DealShare, told THE WEEK.

The pandemic has changed many things globally, and the lockdown has led to impairment of income across the entire spectrum, right from large corporations to individuals. This has been evident from the concessions in the form of deferment of payouts allowed by various organisations and service providers. From electricity boards to the Reserve Bank of India (RBI), there has been an empathetic approach towards the economic condition of today. The growing popularity of the 'buy now, pay later' is due to these factors.

“This has become the un-chanted mantra for many businesses to ensure that they retain their existing customers or user base and also add new customers to their list. What looks like a simple marketing tool has in fact been instrumental in keeping businesses afloat in many cases. The economic slowdown is here to stay before we get back to normal pre-COVID levels. Until then, a paradigm shift through this concept may probably become the new normal,” said Raj N, founder of Zaggle.

Platforms such as Simpl enable users with 'buy now, pay later' functionality, helping merchants to maintain 'khaata' on the cloud. The platform currently works with merchants and financial institutions to help them go beyond the traditional way of making purchases. Interestingly, during the lockdown, Simpl recorded an upsurge in daily essentials transactions by 50 per cent of pre-COVID levels through online orders.

“The ticket size on merchants such as Dunzo and Bigbasket is up by 30-40 per cent. It was also observed that orders for groceries and home essentials were made between 10am and 1pm whereas 60-70 per cent users made transactions between 6pm and 9pm. Groceries or essential shopping through online platforms used to happen mostly over the weekends or start of the month before the advent of COVID-19. The rise in online transactions recently made through our platform indicates an average 1.5x increase in ticket size,” remarked Nityanand Sharma, founder, Simpl.

However, despite the popularity, some market experts believe that though the 'buy now, pay later, trend has become relevant for the digital populace, for about 50 per cent of the total population, especially the section of people who are experiencing income uncertainty, this businesses model comes with its own challenges. “There is a risk of increasing bad loans, mainly among first time users who are more likely to default from the pool of swelling subscriber base. The applauded popularity of the business model is yet to face the real test when the job losses rise and government aids decline while moving towards the speculated recession,” observed Rajiv M Ranjan, CMD of PaisaDukan.com.

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