Title: The Dark Side of ‘‘Buy Now Pay Later’’ Fintech Companies

1. Introduction
The advent of the internet and the proliferation of smartphones has transformed traditional
banking, insurance, and wealth management activities, etc., and have swiftly moved out from
the ‘Bricks and Mortar’ to ‘Click and Order.’ FinTech ecosystem has exploded in the Indian
market and is rapidly changing the Banking industry’s Credit system with the ‘Buy Now Pay
Later’ apps. The Indian BNPL sector has grown rapidly over the last few years with a larger
number of users choosing BNPL products over Credit Cards for Shopping purposes. Buy
Now Pay Later is a type of short financing that allows consumers to make the purchase paid
for them at a future date without any interest. It’s a simple short-term loan product where the
BNPL lender pays the merchant or the service provider at the point of sale on behalf of their
users and then allows them to repay the loan at a future date with negligible or no interest
charges. BNPL is like a payment option where we make a purchase without having to pay
from our pocket. FinTech companies found a niche in the market and extended credit
facilities to customers who were denied services by Banks and Financial institutions. They
offered the same functionalities of credit cards minus less documentation, lower fees on late
payments, and flexible repayment structures with multiple online offers. According to the
reports released by Razor pay, the BNPL sector grew 539% in 2020 and 637% in 2021. The
targeted audience of this sector was students, young professionals, and GenZ. The rapid
growth of E-Commerce and Digital Payment industries and FinTech companies and low
Credit card penetration opened up the pathway for the BNPL sector to boom in the Indian
market. With the surge in demand for online shopping, BNPL apps provided easy access to
short-term credit, which in return made BNPL the most desirable product among the GenZ,
young millennials who are new to credit borrowing.
Leading BNPL Companies in India:
 ZestMoney
 Slice
 LazyPay
 Simpl
 Ola Money Postpaid
 PostPe
 Amazon Pay Later
 Paytm Postpaid
 UNI Pay
How do BNPL apps make money?
BNPL makes money from both merchant sellers and consumers.
In the case of sellers, they pay BNPL a fee ranging between 2% and 8% of the purchasing
amount if the customer uses the BNPL facility. They also make money by solidifying their
positions through various marketing or promotional spending gave that the seller can increase
conversion or traffic.
BNPL companies make money from customers by charging an interest ranging between 10%
and 30% based on their credit score, repayment tenure, etc. As long as the amount is repaid
on time, no interest is charged.
Some customers may not be able to repay the amount by the due date, on which a late fee is
charged. The payment of the late fee adds to the BNPL company’s revenue.
Pros:
 Provides customers the convenience to shop without worrying about cash.
 Fast and easy access to credit
 Less documentation required for approval
 Interest-free short-term loans.
 Help e-retailers attract new customers
 An alternative to a credit card.
 Easy spread-out payment plans
Cons:
 Encourages impulse spending behavior
 Customers are spending the money they never have
 Affects the CIBIL score if unable to pay
 Disrupts the traditional credit system
 Threat to commercial banks & FIs
 Heavy merchant fees
 Encourages the young and GenZ to willingly incur Debt for shopping
 Heavy interest fees in default payments
 Confuses the customers
 Have access to the consumer’s privacy
 Does not follow the RBI regulations.
Although these apps are providing quick solutions, on the flip side overindulgence in
BNPL apps is a predicament.
2. Objective
 To study the consumer’s buying behavior and their willingness to incur debt while
online shopping.
 To examine how Digital Lending has transformed the traditional credit system and
banking industry.
 To analyze the impulsive spending nature of young millennials and GenZ with the
BNPL payment option.
 To study the RBI’s rules and Regulations against the BNPL sector and protection for
customers.
3. Literary Review
BNPL is a magnificent choice for individuals who need something but don’t have immediate
cash to access it. BNPL has become more than a credit tool, it has become a lifestyle.
However, BNPL will become the driver for credit growth in India. The BNPL revolution in
India has just begun, over the years it will change the face of credit in India. In this study, I
aim to understand how the FinTech companies and E-commerce merchants are using Gen-
Z’s impulsive buying behavior, easy access to E-Wallets and E-Money, and
overconsumption of technology as an excellent opportunity to increase Gen-Z’s purchase
decision and their willingness to incur debt to fulfill their needs.
Before moving further with our research let us first understand the basic difference between
credit cards and BNPL payment options.
 Hidden charges are levied on credit cards but BNPL follows a transparent and low-
cost pricing model
 For Availing, a credit card customer needs to have a good CIBIL score, but the for
BNPL payment option, good credit history is required.
 Credit card repayments can earn you cashback, rewards, and points Airmiles on
purchase but BNPL provides no sucks rewards.
 Getting approval for a credit card is tough but BNPL provides easy access and
approval.
 Credit cards come with more flexible acceptance but BNPL services are provided by a
few selected e-retailers.
 Credit cards have the option of paying a ‘minimum due’ amount but on BNPL you
have to pay a fixed EMI on due dates.
Below is the Review of literature that helps my research.
Sanjay Phadke in his study reported the enthralling journey from history to the utopic
future where finance has merged with technology and is speaking in a language
such as AI, Blockchain, and Crypto. He emphasized ‘how’ technology is becoming
important within the domain of finance and money.
Fredrik Bjork in his study reported the current issue surrounding the BNPL trend and
if it is beneficial for the citizens, especially Gen Z.
Luigi Wewege in his study he has reported the risk facing the financial technology
companies are rapidly transforming the traditional retail banking industry through
disruptive innovation.

4. Research Gap
COVID-19 made people rely upon technology and overconsumption of E-Commerce
websites for shopping essentials. This rise in demand for online shopping and digital payment
apps led to a surge in the use of BNPL apps. Rapid technological enhancements within the
finance domain also changed the traditional credit system to digital lending by FinTech
companies. Yet still, there are complexities surrounding the BNPL trend and the sector is
facing the heat from RBI in the present scenario. These BNPL apps are extending credit to
customers without any prior knowledge about their credit history and affect the Cibil score in
case of default. There is an extensive gap in BNPL as it is used by only the adult population
who do not have any income. The research was conducted on these easily accessible credit
payment options. And how its perceived pros affect our willingness to incur debt without
income. This study filled the gaps of the previous research by examining how BNPL not only
increases their consumer’s desires by making them willingly fall into the debt trap.
5. Research Methodology
In my research, for primary data collection, I circulated google form conducting a survey
among consumers from different backgrounds, demographics, and income levels to know
their preferences and opinion on the BNPL payment option and their usage of the app, and
whether they would keep using the app in future or switch back to the traditional credit card. I
also tried to comprehend the level of financial literacy and knowledge about the credit system
in India.
For secondary data collection, I used Simpl BNPL company’s reports on their active users
and study their buying behavior, frequency of using the BNPL payment option while online
shopping, the pain of paying attitude, transparency, convenience, credit limit, and credit
history of good customers and defaulters.
6. Data collection and Analysis
For the primary data I circulated the google form where I asked the following questions:
 Age structure

 Working status

 Annual income

 Definition of credit cards

 Minimum CIBIL score for credit card

 Which BNPL app you use

 For what expenses BNPL is used

 Frequency of using BNPL app

 Which credit facility they will use for short term loan
  When do they pay their dues

 Which credit facility they will use in the next 10 years.

7. Conclusion
So, from the above research, we can conclude that the BNPL sector in the coming decades
will keep on growing and more customers will prefer these buy now pay later apps for online
shopping and services. Customers will willingly take the risk of entering a debt trap to fulfill
their shopping and daily needs because of the app’s convivence of payment and easy access
to short-term loans and no-cost EMIs. Although these BNPL apps’ user interface might
increase still the traditional credit card system will persist and people will prefer this mode
for taking huge loans and capital for investments. In the future, RBI will regulate more strict
rules on these BNPL credit systems to protect the user’s interest. These apps should also try
and enforce certain regulations over credit lending and provide their customers with a brief
report on their expenditures to control the impulsive purchase decision at the cost of debt.