Home / Industry / Banking /  Credit cards battle BNPL, banking on aspirational value

MUMBAI : Wary of the growth in India’s ‘buy now, pay later’ (BNPL) market, credit card issuers are banking on the fact that credit cards still remain an aspirational product, leaving ample opportunity for both payment categories.

BNPL allows borrowers to repay in up to 15 days on e-commerce sites, although some companies offer short equated monthly instalments (EMIs) as well. Experts believe that the rise of such innovative financial products may not be in direct competition to credit cards. Instead, it may allow some of these borrowers, many of whom are new to credit markets, to create a credit history for future bank loan needs.

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Internet-focused consulting firm Redseer estimates India’s BNPL market to grow 15-fold in the next five years to $45-50 billion from $3-3.5 billion in FY21. The number of BNPL users is likely to surpass credit card users to reach 80-100 million by FY26, according to the report. These numbers were cited in a Macquarie report on 29 September.

According to Macquarie, while BNPL is an opportunity, it is focused on low-ticket lending to new-to-credit customers and the maximum credit limit offered by BNPLs is less than `100,000, much lower than what credit cards offer.

“BNPL helps me increase the universe for credit cards because new-to-credit (without credit history) is always challenging for a credit card customer. So, I look at it very positively," said Shailendra Singh, managing director and chief executive of BoB Financial Solutions Ltd. BoB Financial Solutions, earlier known as BoBcards Ltd), a wholly-owned unit of state-run Bank of Baroda (BoB), began operations in 1994.

Singh said the construct and design of a credit card is so unique and different that no product in the banking industry can compete with it.

Others believe that BNPL and credit cards cater to different customer segments and therefore can co-exist. “While I do see BNPL as a worthy competitor to credit cards, I feel the segments which they cater to are different. In general, banks are focusing on prime customers for credit cards and, therefore, we expect that a majority of the population could be served by BNPL for their short-term credit needs," said Aditya Damani, founder of consumer lending fintech Credit Fair.

Damani explained that BNPL products are more accessible than credit cards and the ease of payment through these products is better than traditional plastic cards. “Just like landlines were difficult to get in India and then the mobile revolution simplified calling, credit cards are hard to get and BNPL is expected to fill that void," added Damani.

To be sure, experts estimate that only 3-4% of Indians own a credit card and, therefore, see immense opportunity in cards.

“There is a large nascent market for everyday digital payments, more so on the credit side, because credit is also becoming a day-to-day feature rather than only for luxury and discretionary items, which means grocery, transport, everyday spends particularly as the line between online and offline payments blur," T.R. Ramachandran, group country head (India, Sri Lanka, and Bangladesh) for Visa said at the recent launch of a co-branded credit card.

Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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