Buy Now Pay Later & Its Financial Inclusion

Launched by Afterpay in Australia in 2015, BNPL is a way for users to pay for their e-commerce purchases later with limited credit checks and an easy payment experience. Given the lack of transparency in operations and growing distrust of traditional credit products due to their history of high cost of debt, the product gained huge acceptance among Millennials. BNPL allowed these young adults to avoid credit and still get relief on their cash flow.

Over the years, Afterpay has become the market leader in Australia and New Zealand. Similarly, Klarna emerged in Europe and Affirm flourished in the US as well, while Afterpay launched in the US as well. All these companies have become market leaders in their respective geographies and their valuations are showing strong investor interest.

At MobiKwik, we believe that facilitation of payments, with the benefits of pay later, is an extremely powerful strategy that will shape the future of fintech and democratize credit. When BNPL category maker Afterpay is acquired by payments behemoth Square, you know this strategy isn’t just a figment of the imagination, but a truly valid model that people are willing to put their money and future behind.

The payments market in the US is booming with big players such as PayPal and Square, each participating with their own unique model. PayPal is a notable incumbent that launched its Pay Later product in 2014, while others haven’t really embraced the BNPL opportunity yet. Square plays on both sides of the payments ecosystem with its large merchant network and a vibrant consumer base on its Cash app. Using an Afterpay payment product to connect your consumer base with your merchant base should bring exponential scale and stickiness to the Square-Afterpay platform. Instead of copying PayPal and developing the product in-house, Square took the acquisition route, acquiring Afterpay.

The fact that Square, with its deep pockets, and talented technology teams, felt it was too late to build the product in-house, says a lot about BNPL’s rapid rise. I am sure this bold bet on the part of Square founder Jack Dorsey and company will play a headline role in their plans for market/world domination and the premium paid to add Afterpay to their arsenal will be totally worth it. The value proposition of Afterpay is such that some analysts have wondered whether there will be competitive bids from other players.

Note that compared to developed markets such as Canada, Japan, US and UK, where credit card penetration is 83%, 68%, 66% and 65% respectively, India’s credit card penetration is significantly lower than global counterparts by 3.5% Is. This reflects the lack of credit availability and an inherent opportunity for BNPL to fill the void. Overall, the segment is expected to grow 15-fold from $3.5 billion in 2021 to $45 billion-$50 billion by 2026.

In developed markets, BNPLs flourished as the new generation did not want credit cards with hidden fees from traditional financial institutions. In developing markets such as South Asia and South America, credit has not yet reached the public and only a select few have access to it. Tech platforms can bring enormous efficiencies to distribution in these markets. The analogy is simple- existing financial highways like the US exist and BNPL will replace many of them. In India, such future highways will be built from scratch using mobile payments and BNPL, increasingly democratic payments, credit and all fintech.

BNPL for daily life payments (e-commerce, travel, groceries, bills) is the only way to give financial freedom to millions of Indians.

Upasana Taku is the Co-Founder and Chief Operating Officer of MobiKwik.