BNPL

BNPL stands for Buy Now Pay Later. In this model the BNPL companies onboard banks as
partner merchants and open accounts on the user’s behalf. The way transaction happens is when
a customer buys a product online using BNPL services, the bnpl company makes the payment on
the person’s behalf to the bank upfront minus commission and other charges and the company
then collects series of payments from the customer in series of payments usually set for few
weeks. In essence, its a short-term credit instrument or a short term loan.

Sidenote - BNPL industry is a relatively newer industry based on credit and the regulators i.e.
the RBI is still figuring out how and what to do therefore for the startups working in this
industry, its like chartering unchartered waters, they are experimenting and seeing if their
experiments stick with the RBI. However one of the major requirements or the survival skill in
these startups in my opinion is to pivot their business models if need arises like the way it
happened with slice credit cards.

Business model

When a customer makes a purchase and selects the BNPL option as their payment method, the
following takes place: A preliminary check of the consumer's credit history will now be carried
out by the lender. When the customer chooses BNPL, they are required to enter their personal
information. After that, a guarantee is obtained that the borrower will return the loan given his or
her credit history through the use of the soft check.
If your application is approved, you will be expected to pay a nominal sum towards the overall
price of the item. In addition, the store applies a charge for each transaction. The range is often
between 2% and 8%. This amount is deducted in an instant from the total amount that the BNPL
loan owes to the retailer.
The laptop was shipped to the customer without the latter needing to make any upfront payment
for it. Now that he is in this position, he can settle the bill all at once or in installments. It is
possible to make the payment with cash, checks, electronic bank transfers, credit cards, or debit
cards.
Typically, there is no interest attached to the money. Nevertheless, if the payment is late, the
customer will be accountable for the interest costs that are accrued during that period. A missed
payment might also have a negative impact on your credit score.

Revenue Model

Seller Side
Vendors have the opportunity to grow their consumer base thanks to BNPL. Because of this,
people with low balances can purchase goods. In addition, it gives sellers a another payment
option. As a result, customers must pay a transaction charge of between 2 and 8% of the total
purchase price. While this raises concerns for the suppliers paying the high transaction costs, it is
clear why given the rise in order value.

Customer Side
● Interest - Customers are another source of revenue for BNPL. Depending on the
customer's credit or length of payback, some businesses assess interest rates of between
10% and 30%. The borrower will be responsible for the interest fees if they decided to
repay the loan over a longer period of time. Just a few businesses, nevertheless, do not
charge you anything if you refund the money on time.
● Deferred Payments - The consumer is responsible for the additional fees if the
money is not returned within the allotted period. From there, BNPL firms
generate significant money. The interest fees may be as high as 30%. Despite the
customer's assurances that they will soon refund the balance, there is a cost for not doing
so promptly.
● Revenue via Advertising - The display advertisements they run are a noteworthy
additional revenue stream. In an effort to boost sales and credibility, several
companies seek out ads. And the marketing certainly costs money! In order to
broadcast their advertisements, these businesses pay them. As many of them have still not
subscribed, the income from this source is not very substantial.
● Revenue by Data - Data has become the new kind of currency. Companies have access
to a significant portion of your personally identifiable information, which presents
them with future opportunities to generate income. This information is
extremely valuable and may be bartered for additional financial gain. They will be able to
make use of it in the future to broaden their customer base and increase their income.