4 min read.Updated: 24 Aug 2021, 01:14 AM ISTAnagh Pal
Buy Now Pay Later should be used only when you can repay in time and not on things you won’t pay cash to buy
What are the various options you have to pay when you purchase a product or service? First there was cash, next came debit and credit cards, followed by mobile wallets. While in cash, debit cards or mobile wallets, you need to pay the money upfront, credit cards give you an interest-free period.
The latest kid on the block is the ‘buy now, pay later’ (BNPL) option. It means that you get to make a purchase right now, but are allowed to pay later without using a credit card. And these are gaining in popularity.
Types of BNPL offerings: There are a few types of BNPL offerings. Some, such as LazyPay, have tie-ups with more than 300 merchant networks, and allow you to make payments upfront to merchants with the option to pay later.
Deepika Roy, a LazyPay customer, says: “LazyPay comes very handy to me on a day-to-day basis while ordering food from Zomato or Swiggy. The process is faster and you can clear the dues at your convenience, with no additional interest."
Others such as Capital Float BNPL also have tie-ups with merchants. “Customers can make purchases at checkout using BNPL and make repayments in the form of single payment at the end of 30 days or as EMIs," says Sashank Rishyasringa, co-founder and managing director of Capital Float.
Recently, the fintech startup Uni launched a pay later card, Pay 1/3. The card automatically splits the transactions into 1/3rd, allowing consumers to pay their monthly spends in three parts over three months for no extra charges. Or you could pay upfront and get 1% cashback. “Other pay later options are not cards, so they are merchant dependent and only work within a merchant network and the credit lines are also much lower," says Nitin Gupta, founder and chief executive officer. Pay 1/3 provides a credit limit in the range of ₹20,000 to ₹6 lakh.
Such products are different from a personal loan, which is a single-use loan for high-ticket products that charge a fixed interest. The amount of finance available would be different for different service providers. The credit limit is decided on a variety of factors such as repayment history, credit profile and data from credit bureau.
Now, let us look at some features of BNPL products.
Convenience: The biggest benefit of such BNPL products is convenience. To use LazyPay, you need to download the app, sign-in, check your spending limit and start transacting . For Capital Float, the application process is simple and seamless with instant approval. The customer is required to complete a quick know your customer process and the credit amount is instantly made available for purchase on the merchant’s website. “For pre-approved users, the MobiKwik Zip activation on our mobile app is seamless, one-tap and takes less than a few minutes (in contrast to the application process of a loan or credit card which is days or weeks)," says Upasana Taku, co-founder and chief operating officer, MobiKwik.
For the Pay 1/3 card, one can download the app from Play Store and then sign-up for the card through a quick process. The digital card is activated immediately, while the physical card is delivered within two to three days.
No upfront payment: You can either make a purchase and pay later or make a payment and break it down into EMIs. In case of LazyPay you have a 15-day cycle to make a payment, while in case of the Pay 1/3 card, you can split your payments in three parts over three months. When your payment is broken down into EMIs, you may or may not have to pay interest in some cases. “A large number of our BNPL loans are done on a no-cost EMI basis through partnerships with brands and online merchants. In situations where the customer bears the interest, BNPL interest rates are significantly lower than credit cards and in line with mainstream personal loans," says Rishyasringa.
Late fees/ interest: Remember, it is BNPL, hence payment has to be made within the stipulated period. Otherwise, you have to pay a late fee. “In case of an inability to repay, the users will be charged a penal fee of ₹10 every day. If there is a considerable delay in payment, the consumer will not be able to use LazyPay services ever," says Anup Agrawal, business head, LazyPay.
The late payment fees at Capital Float range from ₹100 to ₹400. “In case of Pay 1/3 card, there is a late fee which is decided on the basis of slabs. However, unlike a credit card, there are no interest charges. Also, if you fail to make a payment for a period, there is no fee on interest or interest on interest charged," says Gupta.
There are various reasons why these BNPL services have lower penalties. “The ticket sizes are low, and also they will go to recovery agencies much faster. The other reason is for them to create a habit out of this just like home delivery of food which was free earlier but now it is chargeable. They’re creating a habit and will monetize it later once we get used to it," cautions Shweta Jain, founder, Investography.
Takeaway: While BNPL sounds amazing, remember it is meant to make you spend money you do not have. “Spend only what you can pay easily. Do not count on future income like pay increases or bonuses. Use it for its convenience with responsibility," says Jain. Also, make certain that you know the fine print about late payment fees or interest charged in case you cannot make a payment on time.
Use BNPL when you can be sure that you can pay back on time. Resist the temptation to use them which you would not have paid cash to buy. Remember, there is no free lunch. You have to pay for it, now or later.