Beyond The Sheen: Merchants And BNP

We live in an era of immediate gratification be it likes on social media or home delivery of our favourite products at the tip of our fingers. While businesses are looking at new and innovative ways to capitalise on this trend, we also see the emergence of new business models. One of these is the now maturing ‘Buy Now Pay Later' (BNPL) trend. While it has given payment flexibility to the consumer, for the merchant, it is proving to be a mixed bag.

From the merchant angle, “This gives them a great opportunity to tap and retain newer consumer segments, with hassle-free pay later experiences which is resulting in greater adoption of the model. BNPL offers merchants tangible business benefits as it improves retention and reduces customer drop-offs, ultimately driving higher sales conversions. Aligned to this, we have significantly strengthened our merchant network in 2021 to meet the evolving consumer demands through the BNPL deferred payment and the recently introduced EMI checkout option.” says Anup Agrawal, Business Head, Lazypay. These advantages are true for merchants with perks like increasing affordability, instant access to credit, safe and secure transaction, flexible repayment tenure, no-cost EMI, simple, and transparent process. Given the flexibility, it will also help them attract more and more customers who would otherwise steer clear of one-time heavy purchases.

Given the multitude of advantages for merchants, one may only wonder how’s it a losing deal for them or even the customers. However, that might not be the case. Take, for instance, the high delinquency rate, wherein many BNPL customers struggle with repayments due to an impulsive purchase which seemed good at the moment. Given the insufficient regulatory rules, a lot of them might even get away with it, or the merchant will have to engage in a tiresome back and forth to claim their payment. Redseer estimates India's BNPL market will rocket to $45-50 billion by 2026 from $3-3.5 billion at present. Also, only select few industries have rise in BNPL trends which does not include essentials and it does not include the Indian market as much.

Image source: Redseer

Another common argument is that BNPL is soon to take over a credit cards. However, that might not be the case, since the maximum credit currently being offered on BNPL is INR 100,000 rupees, as per Macquarie Research, which is much lower than what a credit card offers in today’s time. Given this fact it will take some time before it can disrupt the cards market.

So How Can Merchants Protect Themselves?

As of this moment, it will be in line with being extra cautious. “While choosing a BNPL partner, merchants should look for transparency. Reading your BNPL provider’s policies not only ensures an enhanced customer experience but can also protect against error or fraud claims. Customer protection and empowerment is expected to be at the centre of regulatory developments for BNPL.” adds Agrawal. Given the lack of clear-cut regulations, the ball is in the court of the merchant or the consumer to exercise caution.

Given the trends in that sector it is predictable that in 2022 more and more financial institutions apart from banks will take part in the BNPL mode of payment, especially as it poses a threat to credit cards. It will also lead to the national expansion of the BNPL model given its permeability. The merchants will have to focus on specific sectors as the competition increases, especially as the industry will get more streamlined after the government regulation comes out, hopefully in 2022.

The BNPL model is making rounds, but it is yet to gain traction in India completely. Once it does, it will make a considerable dent in the financial space.

What should the merchant do in 2022?

In 2022, the BNPL market is here to stay and flourish. We will see leading players like Paytm, PhonePe and the like investing in this sector heavily. The start-ups will look into building a niche for themselves in this sector by coming up with unique models. This is something like every company launching their own credit cards be it finance or non-finance companies, including e-commerce companies that have no stake in finance. In such a scenario, it is unlikely that merchants can escape this transaction model. However, it is necessary they prepare a BNPL model that works for them. Some of the pointers they can look out for include a strong customer base, that is, large average basket size, large digital conversion rates, expanding consumer base, and low default value. This will also help them predict contract terms and have a higher hand in the bargain.

The merchant should also get multiple retailers on board while ensuring they are functioning on a digital platform that is user-friendly. Given the lockdown situation, we have seen a lot of people dive headfirst, for the first time into online payment. This means they need a user-friendly and easy-to-use website. The merchants need to figure out which are these platforms with a high ‘pay now’ click before they register.

In the present landscape, the merchant has to stay ahead of the game by planning ahead and keeping a close eye on the market, especially if the regulators in India decide to shake up the marketplace.