Buy Now Pay Later (BNPL)

Checkout portals of many e-commerce websites, mobile applications and even banks now offer an option of paying later.

BNPL is a short-term credit facility extended by banks directly or retailers (through their tie-ups with banks and NBFCs), that allow consumers to defer payment on their purchases for 15 to 365 days.
Depending on the service provider, the interest-free period may vary from 15-30 days, beyond which the customer can repay in a single shot or in EMIs spread over 1-12 months.

EMI stands for equated monthly instalment, which relates to payments made regularly to repay an outstanding loan within a certain period.

Unlike the paperwork for traditional loans, customers can enroll for this credit facility almost instantly using their mobile phones, by finishing basic e-KYC procedures.
In most cases, the e-KYC procedure does not involve a video authentication.
Hence, the RBI has mandated that the loans disbursed shall be term loans, for a maximum tenure of 12 months, capped at ?60,000 a year, unless the customer upgrades to full KYC.

OLA’s Postpaid, or Amazon’s Pay Later, or HDFC Bank’s Flexi Pay, are all examples of a now in vogue short-term financing facility called Buy Now Pay Later (BNPL).

BNPL also helps lenders explore new borrowers who would not ordinarily come to them for a loan.
Besides the digital only enrolment, BNPL also varies from a regular credit card purchase or a regular personal loan, on the low-ticket size and comparatively lower interest rate charged.
BNPL loans do not entail any processing fee or other on-boarding charges.
However, BNPL providers do levy additional charges such as late payment fee and pre-closure charges.

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