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What is “Buy now, pay later”?

If you have been hearing the term “BNPL” quite often in the recent days and have been wondering what it is it all about, this article is for you.

Why pay upfront when you have an option to spread the purchase over a few instalments, and without interest? Sounds like an absolute no-brainer, isn’t it?

“Buy Now and Pay Later” is a type of “Point-of-Sale” financing, which is growing in popularity exponentially, especially among millennials. BNPL is a form of unsecured lending in small ticket sizes that allows consumers to make purchases and pay for them later through a few interest-free instalments. Borrowers can utilize these short-term credit schemes on purchases both online and offline even without any credit checks. A first-time buyer will have to complete KYC formalities on the provider’s platform. BNPL providers use analytics to get insights on buyers’ purchase behaviour and determine their credit worthiness. Typically, this option targets millennials offering them easy access to credit for small-ticket purchases.

Why is there so much of buzz around BPNL in recent times?

BNPL has been consistently gaining traction and is radically changing payment behaviour in e-commerce sales over the last few years globally. Consumers are quite excited with this service which is evident from its rapid adoption. They clearly envisage BNPL as a convenient and easy solution. It is no wonder that we hear investments and acquisitions happening in this space every day. Below are a few BNPL investments which made news recently.

India based “Simpl” raises $40 million
Switzerland based “ZoodPay” raises #38 million in their latest round
Australia’s “Openpay” raises $271.4 million
Mexico based “Alpazo” raises $27 million
UAE based Taby raises $50 million in its series B round

While BNPL companies are surging on with valuations even higher than 50+ revenue multiples, many are yet to be profitable in global markets. This once again drives the point that BNPL companies are after customer acquisition, simple as that!

Interestingly, there are global payment solution providers such as PayPal and Square who have integrated this offering as part of their existing solutions. Stand-alone BNPL players will require to up their game in wooing customers with rewards and freebees in the future…just like traditional credit cards.

While there are several views around the pros and cons of BNPL, one thing we are sure of is that these fintech solutions are certainly going to eat into the spend and revenues of traditional banks credit products. Point of Sale financing is growing at a much faster rate than any other unsecured lending products (source Federal Reserve, TransUnion, Mckinsey Finance consumer pools).

How do BNPL services make money?

BNPL companies incur costs in the form of interchange, network fees, issuer processing fees and credit losses. These elements squeeze their margins constantly. It is pivotal for these organizations to explore revenue opportunities in the form of affiliate marketing etc.,

BNPL services make money from both retailers and consumers. Retailers pay BPNL a percentage of 2 to 8% of the purchasing amount if the customer uses the BNPL facility. While the retailers can realize a 20 to 30% increase in conversions and average ticket size.

Consumers pay BNPL through late fees which range from AED 10 and are capped around 25% of the purchase order on the higher side in most cases.

How does “Buy now, pay later” work?

Buy now, pay later arrangements are point-of-sale instalment loans that allow consumers to make purchases and pay for them at a future date. One needs to sign up with a BNPL facility provider who will make the payment to the merchant while the purchase is being made.

Make a purchase at a participating retailer store (online or offline) and choose “Buy Now Pay Later” at checkout.
The store seeks approval from the BNBP provider within seconds
Consumers typically make an upfront payment toward the purchase, then pay the remainder off in a predetermined number of instalments.
Remaining amounts are paid off in interest- free instalments
Payments can be made via bank transfers, credit cards, debit cards or checks automatically.

Does BNPL affect your credit score?

Most of the BNPL solutions approve a transaction based on a “soft” check or a bureau score-based check. This may not impact your credit score.

What are the eligibility criteria for BNPL schemes in the UAE?

UAE resident with a valid Emirates ID
At least 18 years of age
Hold a valid UAE mobile number and email id
Must have a payment option either a debit or a credit card

BNPL players in the UAE

Name	Taby	Spotti	Postpay	Tamara
Solution	BNPL partnered with Telr payment gateway as well	BNPL	BNPL	BNPL
Eligibility	UAE Resident 18 years and above Valid Emirates ID Valid Phone number Valid Credit or Debit Card	UAE Resident 18 years and above Valid Emirates ID Valid Phone number Valid Credit or Debit Card	UAE Resident 18 years and above Valid Emirates ID Valid Phone number Valid Credit or Debit Card	UAE Resident 18 years and above Valid Emirates ID Valid Phone number Valid Credit or Debit Card
Instalments	4	4	3	3
Upfront	25% of none if payment in 14 days	25%	25%	1/3rd of purchase value
Late fees	AED 15 on day one after payment due date and AED 30 after 2 weeks of payment due date	AED 20 with a maximum of two late fees per order.	AED25 the first time AED30 if not settled within 10 days after the Due Date.	25 AED on the first day of delay, then it will increase every 15 days by the same amount.
Late Fees Cap	AED 105	25% of total order or AED 40 whichever is lower	25% of total order	AED 150 or 25% of order value or whichever is lower
Payments	Visa or Master	All major debit and credit cards.	Mastercard and Visa debit and credit cards.	Visa, Mastercard, or even ApplePay and Amex
Reward	Shoppers create an account on tabby's website or app to earn up to 20% cashback, after making purchases at tabby's partner retailers. Shoppers may then choose to withdraw the cash they have earned or settle upcoming payments on tabby	NA	NA	NA

Conclusion:

BNPL has disrupted the payments industry and has created an impact on credit card companies. Retailers cannot shy away from this new reality and if they do, they will be missing the opportunity BNPL brings in. Retailers must also be aware that customers who are accustomed to BNPL services will look out for retailers with similar service offerings.

While credit cards do carry a much stronger value proposition in the form of loyalty rewards, product features and global acceptance, BNPL services will evolve in the future with such functionalities and create better stickiness with customers.

In conclusion, BNPL is certainly an appealing proposition for consumers. However, one must exercise caution and must not go overboard.

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The editorial team at Soulwallet is committed to accurate and relevant content intended to assist our readers while making personal finance decisions. We are glad to get feedback on the article and make necessary corrections if required. You can email the editorial team at support@soulwallet.com. Our editorial advice, recommendations and product assessments are not influenced by business partners.

We are essentially one year since Covid-19 has utterly transformed our lives. From our constrained day-to-day routines to the way that we interact with others, we are all trying our best to retain a sense of normalcy during these uncertain times.

One area of our lives which may not seem normal is our finances. Whether you have lost your job or are struggling to pay your bills, you may have taken on credit card debt to get through this global pandemic. While it’s unclear when the pandemic will end, there are several strategies you can take today to manage your credit card debt.

Strategy One: Consolidate Your Debt

Debt consolidation can be an attractive option to manage your credit card debt. If you haven’t yet heard of debt consolidation, it is essentially taking a high-interest credit card (or credit cards) and combining your debt into one lower payment. Not only are you paying a lower interest rate, but you are paying only one credit card bill per month. In exchange,

You can leverage debt consolidation by either taking on a debt consolidation loan or by rolling over your credit card balance onto a 0% interest credit card. This strategy is more suited for individuals who have significant amounts of credit card debt, rather than those with more minimal debt.

Crucially, however, consolidating your debt may result in a longer repayment period. You may have a smaller month-to-month payment, but you may be paying more in the long run. Keep this in mind as you are considering this strategy.

Strategy Two: Try to Pay More Than Your Minimum Payment

While it may seem simple, this is an outstanding strategy to minimize your credit card debt. Credit card companies want you to pay the minimum amount on your credit card statement (which is typically 2-3% of the overall balance). However, by paying this minimum balance, you are actually paying more later. This is because interest accrues on the remaining balance. The more you have on your balance, the more interest that you will need to pay.

Because of this, you should think hard about paying more than your credit card’s minimum payment. That said, there’s a fine line between paying more than your minimum and also having free cash to spend on other daily necessities. While you will need to make that determination yourself, paying more than your minimum credit card payment can save you money in the long run.

Strategy Three: Prioritize Your Debts

Prioritizing your debts can help you save some much-needed cash. The core of this strategy is looking at your credit card balances and focusing on paying off the card with the highest interest rate. This is a simple, yet effective strategy. Higher interest rate credit cards will cost you more in the long run, so you should pay off those bills first (ideally, more than your minimum payment).

You can also prioritize paying off a credit card with the lowest balance. This can remove one balance so that you can focus on your other balances. In the end, these are two ways that prioritizing your debts can help you obtain financial relief.

Strategy Four: Become a Great Budgeter

Part of getting into credit card debt is spending money that you may not necessarily have. Because of this, one natural way to manage your credit card debt is to impose spending discipline.

This can be especially difficult amidst Covid-19. While your income may have substantially decreased, your expenses may have remained the same. As hard as it may be, see if you can cut out any extraneous expenses. You may need to make some sacrifices right now. But by doing so, you will use that cash to pay off your credit card debt. Before you know it, you will be debt-free and will be able to adopt your old lifestyle.

Strategy Five: Contact Your Creditors

This strategy may seem a bit unconventional, but it has worked in the past. If you have excessive credit card debt that you’re struggling to pay off, don’t hesitate to contact your creditors. The natural place to start is your credit card company. Do some research on their website and see if they have any type of hardship program. That hardship program may have already existed before Covid-19 or the company may have implemented a new program due to the pandemic. Check out your options and see if you are eligible for these types of programs.

If that fails, don’t hesitate to pick up the phone and directly contact your creditor. Explain your current situation and share your track record of consistent payments (if you have one). By doing this, you may find a hardship program that substantially eases your financial pressure.

Relief on the Horizon

As you can see, there are several different options that can help you manage your credit card debt. While each of these options can provide real relief, you need to determine the best option (or options) for you. From there, aggressively pursue those options. By being bold and aggressive, you will get that much closer to relieving your financial pressure.

Tag: creditcards

See it, like it, want it? – “Buy Now, Pay Later” here to stay.