Buy Now Pay Later, or BNPL As it has come to be used, it is a powerful tool that complements the boom of consumerism with the aim of providing a digital credit card experience and also bringing those left out of the structured financial system into its fold. Developed to cater to the underprivileged and underserved section of the population and the new generation who are ready for instant gratification, Buy Now Pay Later is not limited to; It is open to all, thereby unlocking previously untapped opportunities for consumers, merchants and
companies alike.
While the idea behind Buy Now, Pay Later is to do away with the tedious approval processes of traditional lenders, which often frustrate consumers, there is a potential for BNPL if the lending companies do not follow proper rules and guidelines. Could be the flipside. reserve Bank of India.
What is the flipside?
Fintech lenders such as Flexpay/WiFi offer BNPL as a credit product, ensuring that there is credit reporting, but there are companies that use BNPL as a payment product where there is no credit reporting. Such an approach creates a gap when valuing the consumer for other loans and often leads to a misinterpretation of the customer’s actual salary burden by other potential lenders, leading the customer to have a higher leverage when approved.
As a credit product, FlexPay/WiwiFi ensures that positive payment behavior of consumers is also reported – both when consumers pay or do not pay, both are required to be reported to credit bureaus. But when most other companies don’t practice it, it doesn’t lead to reported poor performance, resulting in a customer, who is probably already over-leveraged, taking on more debt to pay and, as a result, a debt trap. falls into; And from a lender’s standpoint, you’re probably giving credit to someone you shouldn’t be giving credit to.
What could possibly go wrong with BNPL?
It is the lender’s responsibility to ensure that due process is followed before granting a loan, which includes taking customer data, checking their bank statements, obtaining their KYC, their PAN number and identification. This helps to establish that the consumer is who he says he is; Then evaluate their credit burden, and lend them the appropriate amount. If fintech players fail to comply, the result is more profit/overburden as already discussed.
Further, when the customer stops making the payment, the RBI’s prescribed code of conduct for collection should be followed. But companies that do not treat BNPL as a credit product may not comply with this code of conduct, leading to customer harassment, involvement of third party collection vendors, who cross the line due to lack of proper monitoring. can.
What should consumers be looking for?
FirstlyFor a consumer, security is paramount, so when downloading apps, make sure the app is from a lender that is a licensed lender. If a company does not have an RBI license, it should clearly state under whose license it is offering the product. Before downloading, check who is publishing the app, have a look at the company website and make sure it is an established and registered company in India.
other thing, Check if the company has been given a license, whether it is clearly mentioned on its website, along with RBI guidelines, including grievance redressal mechanism and interest rate policy. Also, never download apps that ask for contacts as they can be misused for coercion.
thirdMost of the BNPL options claim no fees or zero interest, but you need to understand what the actual cost of the loan is. Even if companies say zero percent, they are expected to declare their IRR – the internal rate of return, so consumers, for their own safety, need to ensure that the company or app does all these. disclosing.
a powerful tool
BNPL is not for every purchase that a consumer wants to make or for everyday expenses, as it would mean availing himself more.
However, when managed correctly and responsibly, the fact is that today instead of making all the payments or using a credit card to buy, you actually get to buy the product at almost the same price and buy it in 4-5 payments. Opportunity to divide. An extremely powerful tool for
This is the advantage that BNPL companies provide and hence adoption has exploded as consumers understand and need it. With caution on the part of the consumer and responsibility on the part of the lender, Buy Now Pay Later is the ideal, frictionless payment solution.
The author is CEO and Co-Founder of Vivifi India finance