What is a Buy Now Pay Later facility?

Gone are the days when good financial planning meant ‘no debt’. In this age, borrowing has become an inevitable part of one's life. There could be various necessities for which an individual would want to borrow funds for the long or short term.

When we say borrowings, the most common terms that you might recall are credit cards and loans from banks. But is that all? Definitely not. To respond to the demand of the increasing need for credit, a large number of players have entered the market to provide individuals with innovative products.

Today’s article will cover the details of one such product, the market size of which is growing rapidly in India - the BNPL facility.

Buy Now Pay Later Model

Buy Now Pay Later, or BNPL, is a facility that allows an individual to buy goods now and pay for them later. Usually, a transaction of sale includes purchasing goods in exchange for cash or credit. But this scheme lets you pay for the goods purchased in instalments. The instalments to be paid, in many cases, are interest-free, which differentiates these products from EMIs. This scheme is available at both online and offline stores.

How do these businesses operate?

You might now wonder how the companies providing BNPL services actually operate. How do they make money? Let’s break it down for you.

The companies providing this type of credit usually have an agreement with multiple retailers. BNPL scheme can be availed only if the purchase is made from these retailers. These retailers pay either a specified percentage on the purchase amount or an amount per transaction. The BNPL companies pay the retailers in full and later recover the amount from their customers.

Buy now pay later schemes also earn from customers. Most companies require their customers to initially deposit a percentage of the credit limit. They also charge interest on the purchase amount based on the creditworthiness of the customer and the duration of repayment. But there are companies like Uni Cards that charge no interest on these facilities.

Is the Buy Now Pay Later Scheme a new one?

The implementing technology might seem new, but the concept dates back to the old Indian traditional paper-based Udhar-Khata System. Local Kirana shops or corner stores used to keep manually logged credit ledgers to allow their customers to buy provisions on credit and repay them later. Also, around the world in the 19th century, consumers often relied on instalment plans to purchase expensive goods (e.g. furniture, pianos and farm equipment) when they did not have the funds to buy outright. This was one of the earliest forms of BNPL. 

In the early 21st century, fintech companies developed systems that allowed 'instalment plan lending' to be integrated into the payment flow of online shops. This integration and instant processing through Point of sale (POS) set BNPL apart from traditional approaches to consumer lending.

Advantages of Buy Now Pay Later Schemes

This scheme is beneficial for both the vendors as well as the customers. For retail sellers, online or offline, who otherwise do not have the financial viability to provide goods on credit to small customers, this scheme acts as a boon. It helps them rapidly increase their conversions by retaining existing customers and also attracting new customers who are otherwise reluctant to purchase. The sellers, though paying a certain amount, are free from any non-payment risk.

This scheme is best feasible for someone who goes broke in the middle of the month but needs a retail therapy session! If you are one such person, definitely consider this facility. Or if you want to spend on stuff without having to shell out at once, BNPL is certainly for you.

 For the customers, apart from the "pay later" feature, this scheme provides certain other benefits. The eligibility criteria for the feature is super simple and quick. Any user who is above 21 years old and has a decent credit score and history is eligible for a card. There is not much of a time period between applying and availing of the credit. In most cases, the approval is instant. However, non-timely repayment of loans can affect your credit score.

You might be thinking that this model is a lot similar to credit cards, but there are a lot of things that separate BNPL from credit cards. Let us explore!

BNPL vs Credit Cards

Credit cards are one of the most common forms of short-term financing that people reach out to. However, they aren't feasible for many. BNPL can be looked at as a better version of the credit cards introduced solely to cover up the drawbacks of the latter.

Availing of a credit card requires a ton of documentation and a long waiting period. All of these aren't present in the BNPL scheme. Also, credit card providers do charge various kinds of charges and fees. BNPL schemes are mostly free from any such charge.

The repayment window available for credit cards is one month. Whereas BNPL provides a long stretch of repayment options from which one can pick and choose. When one repays under the BNPL scheme, few companies do not charge any interest unless in case of late repayment. Whereas credit cards provide an option to pay only the minimum amount on the due date and carry forward the remaining balance on which a very high rate of interest is charged.

Having understood the nuances, let's now look at one such service provider that has a very unique offering.

You might be thinking that even though credit cards have poor offerings, we still do have a physical card with us through which we can pay our bills almost everywhere without any hassle. Well, Uni Pay 1/3rd Card has even solved this problem, too. Uni Cards is not just a BNPL facility like the other players in the market. It also provides you with a physical card within just 72 hours of registration. Not only this but since this card is powered by VISA and has multiple banking partners, it will work at 99% of all merchants in India. You might be curious to know more about this card, so let’s see what this card is all about.

Now, a new category is emerging, which is the best of both worlds. It has the features of both BNPL and Card. Let’s explore.

India’s first Pay 1/3 Card

India’s first Pay 1/3 card? Well, yes, you heard it right! Uni Cards has recently introduced India’s first Pay 1/3rd card, which will change how credit systems work in India. Along with all the benefits that a regular BNPL scheme provides, this PayLater card has certain additional benefits that you’d love to explore. The primary feature of this card is to split your bill into 3 equal parts, which are to be repaid in a span of 3 months, with no additional charge.

For instance, if your purchases sum up to ₹3,000, you can choose to pay only ₹1,000 per month. However, if you repay the entire bill in the first month, you will be rewarded with a flat cashback of 1%. A deal you can’t refuse, isn’t it?

This isn’t it. The card has a host of features that will make your relationship with credit easier. It’s transparent (any fee levied is calculated upfront), so there are no hidden charges. It’s extremely flexible- decide on a transaction level if you’d like to split it into 3 or get 1% cashback. Their Customer Care is quick (they’re also on WhatsApp), so convenience seems to be truly at the core of this card.

It takes just a matter of seconds to apply and avail of the facility of an initial credit limit that ranges from ₹20,000 to as high as ₹6,00,000. Uni Cards has no joining or annual fees, and it’ll be lifetime free for its early users. Awesome, isn’t it?

The Bottom Line

To summarise, BNPL is a very interesting and beneficial concept. And the fact that some service providers make it interest-free feels like a cherry on top.

However, as we always say, financial planning is very subjective. Mindful usage of services like this would reap the most benefits.