BNPL spending surges despite regulatory hiccups in India

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The buy now pay later has faced a severe regulatory environment in 2022. The Reserve Bank of India announced several new rules in the payment sector, one of which barred fintech firms from loading prepaid payment instruments using credit offered by non-banking institutions. This had a direct implication on buy now pay later (BNPL) providers. Notably, after this announcement, some BNPL players such as Slice and Uni stopped onboarding new customers, in order to make adjustments to their business models.

Despite these regulatory hiccups, the BNPL sector is all rage in the country at the moment. Along with the high popularity and adoption rate among young generation consumers, the Indian festival season is bringing huge transaction volumes for providers in the country. Leading BNPL firms such as ZestMoney, KreditBee, and LazyPay, are expecting strong numbers in Q4 2022, amid the rising demand for short-term personal credit. For instance,

• KreditBee, one of the many BNPL players operating in India, announced that the firm had recorded a growth of more than 100% in its loan disbursement during the 2022 festive season, compared to the same period in 2021. The firm has partnered with some of the leading e-commerce marketplaces, including Flipkart, Myntra, Nykaa, Amazon, and MakeMyTrip.

According to a report from Grant Thornton Bharat, the BNPL spending is driven by consumers in Tier II, III, and IV cities. Notably, there has been a 50% increase in credit demand from Tier II, III, and IV cities. This coupled with the pent-up demand for shopping and traveling and is driving BNPL spending in India.  Overall, BNPL spending during the 2022 festive season has surged by 50% to 60% compared to the same period in 2021.

For KreditBee, the credit demand was also driven by millennial consumers from Tier II, III, and IV cities. ZestMoney, on the other hand, saw a huge uptick in new user onboarding during the 2022 festive season. In Q3 2022, new user applications surged 10 times leading to the festival sales season in India. Here as well, the demand for credit was largely driven by Gen Z and millennial consumers.

Pine Labs, another leading player in the buy now pay later category, is also expecting huge transaction volumes. Notably, the firm is aiming at INR 50 billion BNPL deals, which is 80% to 85% higher compared to 2021.

In April 2021, Pine Labs registered BNPL volumes of nearly INR 30 billion. However, this is the first time in its history that the firm is expecting INR 50 billion worth of consumer spending through BNPL loans. All of these numbers clearly indicate the demand for BNPL products in a country like India, where credit through traditional means is hard to come by. Furthermore, the outreach of BNPL is also spreading rapidly in the country. For instance,

• Consumers are using BNPL service for purchasing furniture, shoes, and pressure cookers. It is no longer limited to the top three or four brands in the country. Currently, over 2,000 brands are offering BNPL payment options to consumers in India. Moreover, an increasing number of banking firms are partnering with BNPL providers to extend credit lines for consumers.

All of these factors are driving the growth of BNPL providers like Pine Labs. Notably, in FY 2022, Pine Labs achieved a growth of 44% year over year in volume, whereas, the transaction size surged by 70%. In Q1FY 2023, the firm recorded a growth of 106% in its volumes, and this is projected to further increase in Q2 and Q3FY 2023.

According to PayNXT360, the BNPL gross merchandise value in India is expected to reach US$97.7 billion in 2028. While the measures implemented by the Reserve Bank of India have cautioned the BNPL sector, firms have continued to record strong growth and the trend is showing no signs of slowing down. Over the next three to four years, the growing credit appetite among Indian consumers is projected to keep driving the growth of these BNPL firms.

Currently, there are a number of domestic and foreign players competing for market share in the Indian BNPL industry. The space is becoming more crowded as new startups continue to enter the market and compete with leading players such as ZestMoney, Slice, and Paytm. These startups are also raising funding rounds. For instance,

• In October 2022, Snapmint, a Fintech firm that offers BNPL service, announced that it had raised US$21 million in a debt and equity round. In 2022, the firm has recorded a growth of six times, which is largely driven by 300 D2C brands that offer its services. Across India, the firm claims to have 8 million users.

From the short to medium-term perspective, more players are expected to enter the Indian BNPL industry and raise funding rounds. This will drive further competition and innovation in the sector. Furthermore, this will also lead to merger and acquisition opportunities for big players over the next three to four years. Overall, PayNXT360 expects the sector to keep recording strong growth, amid the growing interest from consumers and festive-driven spending. 

To know more and gain a deeper understanding of the BNPL market in India, click here.