Will BNPL kill credit cards?
Credit cards are in a bit of trouble. Usually credit card issuances jump as prosperity grows in a demographic. Indians, however, seem to be skipping them.
Credit card issuances have been on a steady decline since early 2021. Only about 5.5 L new cards were issued in February this year, which implies a month-on-month decline of 21.57% and a year-on-year decline of 47%.
A part of this decline can be attributed to the steady rise of consumer Buy Now Pay Later (BNPL) solutions. Younger consumers are choosing it over cards for a number of reasons - 44% say it’s more flexible, 33% prefer it for its simple approval process, and 45% just find it easier.
It’s clear that BNPL is coming up as a more transparent, customer-friendly way to make payments for consumer purchases.
In fact, according to recent research BNPL is emerging as the fastest growing E-Commerce online payment method in India. Worldwide, the BNPL platforms market was valued at USD 7.32 Bn in 2019 and is expected to reach USD 33.63 Bn by 2027.
While it’s easy to see why the sector is growing the way it is, the truth is, those who are driving the popularity of consumer BNPL - the urban upper middle class - already had easy access to credit anyway, in the form of credit cards. For them, it’s not the access to credit but the ease of credit that comes with BNPL that’s driving their decision to dump credit cards in favour of BNPL.
However, the same can’t be said for small and medium businesses looking for loans.These enterprises need regular, short-term, small loans to keep their operations running and to tackle emergencies. But 85% of them are informal, and many don’t have a formal credit history to show.
Businesses will leave traditional lenders behind
Banks that rely on this data to underwrite borrowers thus consider MSMEs ‘risky borrowers’ and are unwilling to lend to them - leaving them with no choice but to seek credit from money lenders at exorbitant interest rates.
That’s partly why BNPL is now becoming the standard payment option in B2B E-Commerce. The global B2B payment transaction market will be worth USD 63 Bn by 2026 with a compounded annual growth rate above 6%, while BNPL apps have enjoyed a 162% increase in customer acquisition.
In addition, research conducted across the US and Europe has shown that only 35% of small and mid-sized businesses would seek advice about their business finances from banks.
It’s not hard to see why it’s getting so popular. BNPL enables retailers to purchase on credit, and repay later as per their preference. Powered by Embedded Finance, BNPL loans are usually underwritten based on alternative data - online transactions, bill payments, projected cash flows. Credit is therefore customized to the business owner’s needs and money can be borrowed as and when needed.
While it can take different forms - invoice discounting, credit lines, and overdrafts - the writing on the wall is clear, BNPL is going to change the way B2B transactions work. The only questions businesses must ask themselves is how to embed BNPL, not if and when.
Partnering is the way to go
The time is now, and the best way to do it is to partner with an Embedded Finance Infrastructure company, which will drastically reduce time to market and involve much smaller capital outlays.
It’s a tough workflow to crack and involves several layers - so working with an expert is a cost-effective proposition that doesn’t compromise on the quality of the solution.
In sum, BNPL is nothing short of a godsend to B2B E-Commerce. When implemented well, it profits everyone involved - be it platforms looking to scale, or small businesses looking to seize new opportunities.
Download our E-book for a crash course on Embedded Finance and how your business can leverage it to improve user experience, drive repeat orders, and boost Average Order Value.