Banks are applying the ‘buy now, pay later' (BNPL) model given by fintech to their consumers as they shop in their pursuit for new customers with good credit behaviour. Some lenders are also attempting to increase the range of purchases covered by their debit card EMI feature.
Both tactics are targeted at examining behavioural tendencies among the younger population, many of whom have been exposed to deferred payments via the BNPL route. The majority of them do not have a credit card or any previous credit history. For example, Axis Bank's subsidiary Freecharge has created a BNPL product targeting new-to-bank consumers and customers of other banks. Customers can pay for the merchandise over the course of one month. Axis Bank's president and head of digital business and transformation, Sameer Shetty, explained that the lender sees it as a method to give credit to people who would otherwise be unable to obtain credit, as well as to those who see it as a quick way to pay at the checkout. “BNPL, in our opinion, is an excellent way to create a funnel for credit cards and personal loans. If someone does well on BNPL, they can receive a credit card after demonstrating good payback behaviour, which provides us peace of mind,” Shetty said.
Similarly, ICICI Bank's PayLater programme is a digital credit facility targeted towards customers between the ages of 25 and 30. The bank's EMI on debit card option is aimed at younger users, while it is available to people of all ages. According to an ICICI Bank spokesman, PayLater gets more clients into the credit ecosystem and helps them improve their credit scores. The approach also aids them in establishing larger credit relationships, such as mortgage loans, according to the representative.
Clearly, banks recognise the benefit of capitalising on a post-Covid payment trend that has acquired traction. Financial technology solutions supplier FIS stated in a March 2021 research that BNPL is the fastest growing online payment method in India while accounting for barely 3% of the market at the time. According to the survey, “Buy Now Pay Later” will be the fastest-growing online payment option (with a 53 percent CAGR) and will triple its market share to 9% by 2024. Bank transfers, on the other hand, have been quietly falling as mobile wallets have grown in popularity.
Lenders who previously offered an EMI option on debit cards have expanded the range of applications. Kotak Mahindra Bank stated earlier this month that all of the bank's qualified debit cardholders would be able to take advantage of the debit card EMI option on any purchases of 5,000 or more made at all offline and online establishments across the country. Previously, the option was only available at specific outlets thanks to a partnership between the merchant and the bank.
In a statement, Ambuj Chandna, president of consumer assets at Kotak Mahindra Bank, said the decision was in response to a surge in demand for EMI-based transactions from the bank's clients. “Furthermore, with debit cards far outnumbering credit cards in terms of card numbers, this initiative provides a large, previously underserved market with affordable and convenient access to credit,” Chandna said. Despite the rise in BNPL and debit card EMIs, banks do not expect credit cards to disappear anytime soon. For the time being, all three are likely to coexist. While pay later gives credit on small-ticket purchases, the credit lines available for EMI on debit cards are substantially smaller than those available on credit cards, according to an ICICI Bank representative.
Furthermore, credit cards play a significant role in bank branding tactics. Credit cards have a good value proposition for clients, according to Axis Bank's Shetty, and credit cards are the product with the best recall in banking. “We do not believe there will be a migration from cards to BNPL in the medium term,” he continued.
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