Buy Now, Pay Later – The New Finance Buzzword

05 Mar 2022

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Dear Reader,

Buy Now, Pay Later (BNPL) is a type of short-term financing that lets you pay in instalments by the end of the specified time period. There are quite a few online merchants and fintech companies in India offering BNPL as a convenient payment option and an excellent alternative to credit cards which includes ZestMoney, LazyPay, Simpl, Amazon Pay Later, Ola Money Postpaid, Paytm Postpaid, Flexmoney, EPayLater, Capital Float, etc. By offering no-cost EMIs and being accessible, and transparent, BNPL is all set to revolutionize the lending landscape, especially for young adults.

A new report released by financial technology company FIS says BNPL is India’s fastest-growing online payment method. By 2025, BNPL is expected to contribute 8.6% of e-commerce market value, up from just 3% in 2021.BNPL loans may be dispensed on pre-paid instruments, wallets or bank accounts, powering commerce across a large number of merchants who would have been acquired and enabled by banks and networks. The cost of actual delivery of credit cards into rural towns will be around Rs. 250-300, and also credit activation rate is 20% now, but in the case of BNPL, the cost is negligible.

Taking BNPL beyond the online channel could play an important role in its growth trajectory and opportunities for credit access which are particularly low for young people and new-to-credit customers, who struggle due to a lack of credit histories and track records for lenders to assess and manage risk. The physical card form factor allows customers to use the digital credit line across touch points.

Regulation is also driving collaborations between fintechs, traditional banks and NBFCs. The report of the RBI working group on digital lending, released in November 2021, recommended that BNPL financing should be treated as balance sheet lending. “Since these products do not meet the requirements of traditional credit facilities, a suitable notification may be issued by the Government of India in this regard,” the report said. As a result, new-age lenders are choosing to work with their tightly-regulated counterparts to grow the market.

Banks, NBFCs and card networks play a vital role in enabling fintechs to deliver BNPL solutions. A large number of fintechs have the ability to underwrite credit using AI/ML (artificial intelligence/machine learning) models. However, these loans may be based on capital from NBFC, banks or their own capital in some cases. With UPI credit, Buy Now Pay Later (BNPL), and branchless banking, the roadmap towards inclusion will be significantly accelerated.

Highlights of Issue 7 of FinTalk are:

  • Our Home grown StartUp Stories: Fuselage Innovations, Kochi
  • FinTech firm Rupeek offers instant credit via gold-powered card
  • How Fractal’s entry to unicorn club impacts the AI landscape in India?
  • BNPL grew 637% in 2021, recurring payments by 225%, says survey
  • NGO turned startup Three Wheels United uses AI to put electric 3-wheelers on Indian roads



With Regards,

    Akhil Handa
Chief Digital Officer
Bank of Baroda

   

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Invisible Banking - Banking that you don't have to think about

Buy Now, Pay Later (BNPL) is a type of short-term financing that lets you pay in instalments by the end of the specified time period. There are quite a few online merchants and fintech companies in India offering BNPL as a convenient payment option and an excellent alternative to credit cards which includes ZestMoney, LazyPay, Simpl, Amazon Pay Later, Ola Money Postpaid, Paytm Postpaid, Flexmoney, EPayLater, Capital Float, etc. By offering no-cost EMIs and being accessible, and transparent, BNPL is all set to revolutionize the lending landscape, especially for young adults.


A new report released by financial technology company FIS says BNPL is India’s fastest-growing online payment method. By 2025, BNPL is expected to contribute 8.6% of e-commerce market value, up from just 3% in 2021.BNPL loans may be dispensed on pre-paid instruments, wallets or bank accounts, powering commerce across a large number of merchants who would have been acquired and enabled by banks and networks. The cost of actual delivery of credit cards into rural towns will be around Rs. 250-300, and also credit activation rate is 20% now, but in the case of BNPL, the cost is negligible.


Taking BNPL beyond the online channel could play an important role in its growth trajectory and opportunities for credit access which are particularly low for young people and new-to-credit customers, who struggle due to a lack of credit histories and track records for lenders to assess and manage risk. The physical card form factor allows customers to use the digital credit line across touch points.


Regulation is also driving collaborations between fintechs, traditional banks and NBFCs. The report of the RBI working group on digital lending, released in November 2021, recommended that BNPL financing should be treated as balance sheet lending. “Since these products do not meet the requirements of traditional credit facilities, a suitable notification may be issued by the Government of India in this regard,” the report said. As a result, new-age lenders are choosing to work with their tightly-regulated counterparts to grow the market.


Banks, NBFCs and card networks play a vital role in enabling fintechs to deliver BNPL solutions. A large number of fintechs have the ability to underwrite credit using AI/ML (artificial intelligence/machine learning) models. However, these loans may be based on capital from NBFC, banks or their own capital in some cases. With UPI credit, Buy Now Pay Later (BNPL), and branchless banking, the roadmap towards inclusion will be significantly accelerated.

With Regards,


Akhil Handa
Chief Digital Officer
Bank of Baroda

Banking in Metaverse

For the uninitiated, Metaverse is fundamentally a virtual, 3D space for people to interact with one another and with businesses. There are various definitions floating in the market and as per Statista, the metaverse is a virtual space that allows digital representations of people, avatars, to interact with each other in a variety of settings, using virtual reality (VR) headsets, augmented reality (AR) glasses, smartphone apps, or other devices.


The global Metaverse revenue opportunity could approach $800 billion in 2024 vs. about $500 billion in 2020, based on Bloomberg’s analysis and Newzoo, IDC, PWC, Statista and Two Circles data. The Metaverse idea has been touted to have immense potential as it could be applied to just about anything.Talking about the banking sector, Korean banks have been the first to explore the opportunities that Metaverse has to offer with Korean banks such as Hana and Woori having launched their branches in the metaverse setting.


For enhanced customer engagement, KB Kookmin Bank has created KB Financial Town on metaverse platform Gather. The town consists of Financial and Business centre, Telecommuting centre and a playground. The first part has been prepared as a virtual branch where the customers can move with their avatars and talk to their banking advisers through video chat that will automatically start as soon as they stand in front of the latter. The bank also plans to use the virtual branch for educating young people on finance as well as training their employees.


Although this may sound like something that is still future-looking, but Financial Institutions are increasing gearing up for the virtual world. Last October, Bank of America has launched virtual reality (VR) training in nearly 4,300 financial centres across USA. This will allow approximately 50,000 employees to practice a range of routine to complex tasks and simulate client interactions through a virtual environment. In metaverse, digital banks will be in the right position to begin facilitating transactions in the environment. For example, the digital Bank viz. Mercobank, based in UK, has begun putting strategies to develop virtual environments for enabling its customers to access banking services online and manage financial transactions in the metaverse, “similar to real life.”


We believe that while traditional financial institutions may not be the primary players in the Metaverse, the technology will gradually gain popularity. When it does, finance will be a significant part of its operations and how it generates value, both for individuals and organizations.


Highlights of Issue 5 of FinTalk are:


• Our Home grown StartUp Stories: Saral Designs, Mumbai
• Fintech firm Legalpay launches healthcare focused fund
• The rise of open banking:How Big Data is changing FinTech
• Paris-based VC firm help European startups cross into Africa
• Zingtree turns complex customer service processes into clear action plans


With Regards,


Akhil Handa
Chief Digital Officer
Bank of Baroda

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