Home » Analyzing Buy-Now-Pay-Later: A Consumer’s Dream or a Debt Spiral

Analyzing Buy-Now-Pay-Later: A Consumer’s Dream or a Debt Spiral

by Liana

In current times, the financial landscape is changing fast and at a rapid rate. With the advent of new technologies, banks, and NBFCs are now partnering up with technology companies and bringing their apps and other financial tools, which facilitate their customers by making their consumption patterns easy by providing multiple payment options.

Since many customers are using phones for their payments, the banks are now including payment options in their apps and offer financial services. It comes up with better credit options for the consumers, stating that they will allow the customer to buy the products now and later pay for the purchased products.

Banks now hire DSA partners who are experts in selling these financial tools, and through that, they can bring greater market adoption, which is beneficial for people in their time of need.

Banks and NBFCs both partner with startups where they provide the backend banking facilities and the licenses, and the startup comes up with the technology where they can produce more products for the customers and thus can take advantage of it.

In this blog, we will look into the pros and cons of the BNPL (Buy-Now-Pay-Later) option and check whether it actually benefits the customer or makes them fall for a debt trap.

Understanding the BNPL Service

Simply looking at the process of BNPL service, it’s tough to determine whether it’s a non-stop debt cycle or a zero-interest process that helps to propagate the need for consumption. With the advent of online shopping, companies have partnered with banks to facilitate customers with an immediate checkout option by suggesting they opt for a pay-later option.

Here, a customer doesn’t need to think a lot to check out a product, and it shows that the conversion rate for each item is much higher than the normal state where a person needs to pay upfront.

How It Facilitates the Small Businesses

E-commerce websites are the main beneficiaries of the BNPL service. Here, small businesses sell their products on third-party e-commerce sites. This checkout option is necessary for them as it increases sales and reduces customer friction.

BNPL offers an alternative source of payments, and through that, one can have the chance to complete the transactions without directly hampering the bank balance and creating a total amount that one can pay in the next month after getting payments.

The Positive Impacts

There are certainly positive aspects of the BNPL that customers and businesses can both take advantage of. For example, earlier, a seller needed to offer loans to the customer so that they could sell a particular product to the customers.

Due to EMI options, a seller now gets the payment from the lender, and the financial institution takes the risk of borrowing. That institute charges the interest and recovers the funds that have been taken as debt.

  • Customer Convenience BNPL Offers

It can be claimed that the BNPL has facilitated the consumers to purchase more, and the average order value of the customers increases as a person doesn’t need to pay the cost upfront. It is also a feature that a person can use to cover unexpected expenses and make purchases with the BNPL option.  

  • Plays the Role of Financial Inclusion in New Markets

One of the main aspects of using BNPL is that it allows all types of customers to purchase a product, no matter how small the ticket size is. Based on the credit history of a person it’s useful for the financial institutions of the emerging market to have a credit history about a person and can help a person pay up after the end of each month or at the beginning,

The Risk Factors

There are certain risk factors in the BNPL scheme, and one needs to be careful of its perils. A person who has done HDFC DSA registration or is from a different bank can make customers aware of some of the pitfalls and spread awareness.

  • The Lack of Regulation

The minimum regulation around this financial tool and how it can be used to create a debt trap and a person who is not frugal can fall for this trap and go on a buying spree and make them fall into debt.

The chances of getting deep into the patterns of EMI and falling into a debt trap are some of the reasons why one needs to be careful with the BNPL system.

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