Will ‘Buy Now, Pay Later’ sound the death knell for credit cards?
PayU-owned LazyPay says that BNPL and credit cards will co-exist at least for the next five years.
- Dec 14, 2021,
- Updated Dec 14, 2021 4:18 PM IST
Consumer lending is changing like never before and fintech companies have a huge role to play in this disruption. Experts believe that ‘Buy Now, Pay Later’ (BNPL) is set to emerge as one of the most popular credit options in India for small-ticket purchases like groceries, e-commerce, food delivery, etc. According to consulting firm RedSeer, India’s BNPL market will touch $45-50 billion by 2026, from the existing $3-3.5 billion. BNPL providers like Smpl, PostPe and LazyPay are seeing a massive demand growth from young, millennial users who are quick to adapt to this widely-popular global phenomenon. But will it sound the death knell for credit cards just yet?
“I won’t call it the fall of credit cards. India is massively under-penetrated as far as credit goes. Only 2.5 crore customers have a credit card. Out of that of that many have very low-limit credit cards,” Anup Agrawal, Business Head, LazyPay told Business Today.
PayU-owned BNPL provider LazyPay, that recently announced its BNPL EMI option, says that credit cards are here to stay. “It’s not the decline of credit cards. They would co-exist at least for the next five years. And from there on, we need to see if plastic is a thing of the past and whether it does completely digital. But in the next five years, we're not going to see anything very drastic. If you look at the credit card numbers, even they are doing phenomenally well,” Agrawal said.
The most significant change, he says, is that people are moving towards small-ticket purchases . “They don’t want to commit for long-term debt obligations. So today, if you look at the segment, which is between 20 to 30-year-olds, they want to enjoy experiences more than commit themselves to a very large obligations,” he said.
“There’s a huge shift in the way people are spending now compared to what people used to spend ten years back. That is why the category of EMI or pay later has become such an important play," Agrawal added.
Experts believe that the average ticket size is significantly going down as people need a small 2-4 month’s loan to fulfill small experiences. Agrawal says that LazyPay is expecting a lot of adoption from industries like e-commerce that encourages impulse purchases, especially fashion and lifestyle products. Other areas where he’s seeing demand is insurance and education.
He believes that the industry will eventually move towards consolidation. “For the next 3-4 years, everybody will try. While there will be a lot of companies who will pop up trying to do the same thing, but in the long run, it will consolidate to a few players and that will be depending on what other significant modes were there that they are able to work with merchants and create products quickly, their ability to underwrite and run a profitable business. So execution will be a key area to focus on,” he said.
Agrawal also has a solution to one of biggest challenges of BNPL: debt trap. “We believe in prudent lending. It ensures we lend to a customer when the debt obligation is within their range. And as a part of our policy, we don't lend to customers beyond their range, it is one of the important pillar for our underwriting processes. So as a prudent lender, we will never get into the area where the customer can fall into debt trap,” he said.
Also Read: PhonePe digitises 25 million merchant, kirana stores across India
Also Read: BYJU’S world’s 13th most valuable startup; ByteDance and SpaceX the only ‘hectocorns’
Consumer lending is changing like never before and fintech companies have a huge role to play in this disruption. Experts believe that ‘Buy Now, Pay Later’ (BNPL) is set to emerge as one of the most popular credit options in India for small-ticket purchases like groceries, e-commerce, food delivery, etc. According to consulting firm RedSeer, India’s BNPL market will touch $45-50 billion by 2026, from the existing $3-3.5 billion. BNPL providers like Smpl, PostPe and LazyPay are seeing a massive demand growth from young, millennial users who are quick to adapt to this widely-popular global phenomenon. But will it sound the death knell for credit cards just yet?
“I won’t call it the fall of credit cards. India is massively under-penetrated as far as credit goes. Only 2.5 crore customers have a credit card. Out of that of that many have very low-limit credit cards,” Anup Agrawal, Business Head, LazyPay told Business Today.
PayU-owned BNPL provider LazyPay, that recently announced its BNPL EMI option, says that credit cards are here to stay. “It’s not the decline of credit cards. They would co-exist at least for the next five years. And from there on, we need to see if plastic is a thing of the past and whether it does completely digital. But in the next five years, we're not going to see anything very drastic. If you look at the credit card numbers, even they are doing phenomenally well,” Agrawal said.
The most significant change, he says, is that people are moving towards small-ticket purchases . “They don’t want to commit for long-term debt obligations. So today, if you look at the segment, which is between 20 to 30-year-olds, they want to enjoy experiences more than commit themselves to a very large obligations,” he said.
“There’s a huge shift in the way people are spending now compared to what people used to spend ten years back. That is why the category of EMI or pay later has become such an important play," Agrawal added.
Experts believe that the average ticket size is significantly going down as people need a small 2-4 month’s loan to fulfill small experiences. Agrawal says that LazyPay is expecting a lot of adoption from industries like e-commerce that encourages impulse purchases, especially fashion and lifestyle products. Other areas where he’s seeing demand is insurance and education.
He believes that the industry will eventually move towards consolidation. “For the next 3-4 years, everybody will try. While there will be a lot of companies who will pop up trying to do the same thing, but in the long run, it will consolidate to a few players and that will be depending on what other significant modes were there that they are able to work with merchants and create products quickly, their ability to underwrite and run a profitable business. So execution will be a key area to focus on,” he said.
Agrawal also has a solution to one of biggest challenges of BNPL: debt trap. “We believe in prudent lending. It ensures we lend to a customer when the debt obligation is within their range. And as a part of our policy, we don't lend to customers beyond their range, it is one of the important pillar for our underwriting processes. So as a prudent lender, we will never get into the area where the customer can fall into debt trap,” he said.
Also Read: PhonePe digitises 25 million merchant, kirana stores across India
Also Read: BYJU’S world’s 13th most valuable startup; ByteDance and SpaceX the only ‘hectocorns’