We have seen Pine Labs betting big on (buy now pay later) BNPL in recent times. It has been seen as a big lever of growth,, you work very closely with the merchants as well? How will RBI’s upcoming digital lending norms affect BNPL?
It is more about defining a framework which has not existed and also over the last few years, lots of NBFCs have come into this space. One has to look at it from the perspective of how large the market is and how much has been served. The credit eligible base of customers in our country is in the range of about 220 to 250 million and all their financial records are in place; their CIBIL scores are available but when we look at how many of them have actually been handed out a credit card, I would say it is not more than a 40-50 million card base that we see in the country.
I feel that this segment is hugely underserved. Traditionally lenders, which are mostly banks, do not go out and lend credit to first-time credit customers. A ton of information records, financial data are available and so I feel that it is going to in any fashion slow down the BNPL growth.
I would say the aspiration of the average Indian, the lure of spending and indulging is very high in our country and over the last few years, we have seen that the growth in the Buy Now Pay Later segment of an average ticket size of Rs 10,000 and lower has boomed. We have seen a 3x growth of customers going out there not only buying a consumer electronic product but also buying the favourite pair of sunglasses and paying using Buy Now Pay Later.
Their credits, which have been preapproved for, are in the formal system and have gone through a rigorous process. I would definitely say some framework would help. It would design and innovate and give an outline on how new age lenders should come in and what checks and balances should they have in place. It is a nice leveller, brings a balance and will not slow down the growth.
I am just trying to understand this entire process. If there is a default or a delay, will it be reported to the Credit Bureau? Will CIBIL make a mark of it because ultimately it is the CIBIL number and the fear of losing a credit score which always prompts the borrower to pay back?
When it comes to banks, it is a very well oiled machinery and there are all the processes and protocols in place. In that sense, they do not let up on anything when it comes to reporting for a bad loan, especially credit card defaults. I would say the same kind of practice and hygiene needs to come into the fintech space as well because at the end of the day, they are also chasing growth.
When a fintech company, as a newcomer NBFC, comes into the BNPL space, it is going to grow very fast and there could still be some rough edges along the way that must be smoothened. I feel that one of those definitely is going to be in terms of the recovery mechanism and the reporting mechanism.
I feel to a large extent the RBI steps that have been been kicked off are exactly in the right direction because it would address a lot of areas around how should a new age fintech BNPL company which is running consumer credit on the back of high quality technology also follow the right practices which are laid out for many years by traditional financial institutions.
This needs to come in and would positively impact consumers, merchants and the lenders as a whole.
