Ever noticed the ‘pay later’ option on apps for amounts as less at R200? It heralds the end of credit cards, and the beginning of an era of micro-lending apps. But are they truly helping you?
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Would you buy food and daily items on credit, except if it were your local kirana store? If the GenZs spending habits are anything to go by, taking credit is now fashionable.
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According to the report, The Future of Financial Services, by the market research and data analytics firm YouGov, buy now, pay later (BNPL) is set to become the fastest-growing online payment method in India, increasing from three per cent in 2020 to nine per cent in 2024. “Indians are gravitating towards digital credit services to fulfil their aspirational purchases and daily life transactions. A case in point are people in the 18-25 age group whose digital credit use has grown nearly 45x in the past year for uses such as electricity bill payments, online shopping, travel, education, food delivery and even health, vehicle and job loss insurance,” said Upasana Taku, co-founder and chief operating officer, MobiKwik.
BNPL is a financing method where one can take microcredit starting from a few hundred rupees to a few thousands depending upon the spending capacity of the person. The apps challenge the not-so-traditional credit card, which would ask for multiple bank statements, PAN card, salary slips to check if you were eligible for a loan. BNPL apps only ask for your PAN card number, and contact details to get started, irrespective of the credit score or credit history. It is said to be an instant initiation. However, this writer has been on the waitlist for a week. Experts are now foreseeing credit piling up for consumers, as the credit limit keeps extending.
Nitesh Buddhadev and Upasana Taku
“I am in a constant debt cycle because of these apps. I started using it only for the discounts, but once you begin, there is no going back,” says 21-year-old Yogalakshmi Nadar. “I put a few of my bills on BNPL so they are spread out across weeks. The rest include minimal payments like ordering food or buying something urgently,” says Nadar. “Nothing is really urgent, but there is a wish to have everything ASAP. This app has almost wiped out the time period I would spend on thinking about the need to purchase,” she adds.
Personal finance and taxation expert CA Nitesh Buddhadev agrees. “Thanks to instant gratification, people don’t have the patience to plan and make a purchase. One should pre-plan their expenses, so one is not short of money at any point of time.” He adds that he usually advises people against using these apps. “But there is a way to use them. If the purchases are planned, you know how much money will hit your account at what point of time and expenses can be managed accordingly. If you are not able to pay within that time limit, you are faced with charges and they can pile up,” he adds.
“It gives me a sense of having money. And the account does not go empty the moment there is credit,” adds Nadar. “It is similar to credit cards, but when the bill hits, we realise how much we have spent. It doesn’t stop us from spending the next month so the cycle continues. My credit limit has increased six times the amount I started with,” she adds.
Taku of MobiKwik claims that using BNPL apps actually reduce the possibility of falling into a debt cycle. “Unlike credit card users, BNPL users do not need to pay a minimum monthly due amount or don’t accrue interest.
BNPL users have to clear their outstanding bill to be eligible to use the service again. This prevents them from falling into debt traps and hence, optimises their budget,” says Taku.
She feels that digital credit services are empowering Indians to make purchases more smartly and independently, removing the awkwardness of having to borrow from friends and family.
But as Jyothsana Y, a remote brand head for early stage startup, says, “Indian youth are not reckless spenders.” She adds, “They are young and have a certain lifestyle.” That these apps are usually marketed as money-tracking apps, Jyothsana says, is a good advertising strategy as it taps into the Indian mindset of saving. Sahil Mhatre, 23, who uses these apps to track his expenses, says, “It gives me a credit limit of R5,000 and I use it as my monthly budget for food and travel.”
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