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No, we are not talking about any sci-fi concepts shown in Hollywood movies, but a finance product. Yes, with this emerging business model, Time Travel is very much possible. Buy Now Pay Later, more often referred in its short form BNPL. A business model that is borrowed from the West which is known for consumerism. It is typically borrowing the money from one’s own future earnings and spending it today. But Indians always admired and embraced certainty over risk when it comes to their personal finances. Thanks to the post-independence era of extreme poverty and high unemployment rate which inculcated the habit of saving for future.
India had witnessed Permit Raj for a very long period, where not only luxuries but also needs had quotas. A necessity like a Bajaj Chetak used to have a waiting period ranging from months to years. Even marriage dates were fixed based on the scooter delivery. But all has changed post the well-known economic reform in India LPG (Liberalization, Privatization and Globalization). With better employment opportunities and high disposable incomes, Indians started experiencing lavish lifestyles by embracing foreign brands, so-called westernization. Consumerism, the term most used in the western world found its place in India.
However, the Indian DNA still appreciates saving for the future. Household debt to GDP is still at a low level compared to many developed and developing economies. Though credit card penetration had seen a tremendous increase in the recent years but the same has not increased the personal credit much. There are multiple checks in terms of income and credit score to obtain a credit card, which majorly caters to the salaried class and high-profile business classes. Thus, majority of the population don’t have access to easy and instant credit. Though personal loans are available, availing them is still a tedious task for people with no regular incomes or good credit score.
With this business problem at hand, Buy Now, Pay Later (BNPL) has emerged as a solution which gave easy credit to almost everyone with minimal documentation and checkpoints. Customers can purchase anything and pay the amount in the subsequent month or split the same into EMIs where interest rates can go as high as 48% p.a. where a personal loan can be availed for as low as 15% p.a. In an urge to grow and grab maximum market share, some companies turn blind eye to the credit history of the customer. On the other hand, customers with impulse buying nature ignore their earning potential and tend to become spend-thrifts. The situation is so perilous that even before entering the professional world, many teenagers are having debt burden on them.
Let’s see an example how BNPL is just an eyewash and hiding the real picture. From the below illustration, let’s assume that a person had spent ₹ 30,000 in December which is his average monthly spend. As per the card benefit, he can pay the amount in three equal instalments without any interest i.e., a no-cost EMI. In the month of January, he pays ₹ 10,000, February ₹ 20,000 and from March third month onwards he starts paying ₹ 30,000 i.e., ₹ 10,000 of January, ₹ 10,000 of February and ₹ 10,000 of March. It means, effectively, from the Third month, he is actually paying the entire amount that he has spent. If he fails to pay the same, hefty penalties are in place to ensure BNPL companies’ profitability.
One must remember the famous saying “there are no free lunches”. Such uncontrolled extension of credit is not only perilous to an individual, but also the banking system. RBI has taken a step in the right direction by putting a check on BNPL companies and their lending.
With BNPL
“Buy the things that you don’t need,
With the money that you don’t have,
To impress someone who don’t care.”
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.