Buy now, pay later: A concept catching steam on online portals

The online shopping experience is adopting yet another offline convenience to attract more customers to its portals. Be it a small roadside cigarette shop or the nearby grocery vendor, the concept of maintaining a credit system and paying at the end of the month or when the amount is substantial has predominantly existed in an informal manner. However, with the use of technology this concept is being made more formal and widespread on online portals.

Companies such as Simpl, ePaylater and Lazypay by PayU are offering customers the option to ‘Buy now and Pay later’ on online fashion portals, ticket booking websites and even food ordering portals. Even Flipkart is giving the option to certain Android users and planning to expand it to the whole user base.

“This is basically the intersection of three vital elements of digital payment—cashless, convenience and credit—which are all emerging trends especially with the country’s move towards digitisation,” said Akshat Saxena, co-founder of ePaylater.

How the system works?  

The service providers tie up with online portals to offer it as yet another payment option in addition to cash-on-delivery, net banking and pay by card. A customer needs to log on to one of the service providers and give details such as Aadhaar number, email id, phone number, and name. The service providers then use machine learning that looks at the user’s digital identity, intent of credit and multiple other factors to determine whether the person is eligible, as well as to determine the credit limit. Once the initial step is done, for the user it will be a single tap at the checkout point of any of the partner portals. The cumulative bill of spending on all the portals will be available on the service provider’s app and can be settled at a single go either by wallet, card payment or net banking.

“People paying us back is a credit risk that is there in the business, which any lending unit has, be it a loan product or a credit product. The best way to tackle that is at the source itself: we let in only trustworthy transactions and customers. For this we have spent six to eight months on building this product. Now we deploy machine learning, AI and other sophisticated analytical tools that combine a lot of information together and assess the expected short risk. Only if the customer is an eligible candidate do we allow the transaction to go through,” explained Saxena.

The Tech Savvy become primary users

The most prominent users of this facility are the customers who are categorised as ‘online first’. Typically, an online first customer is one who makes multiple online transactions each day. These may be anything from food, groceries, online shopping, ticket booking and cab aggregators. While doing multiple transactions, the customer finds it time consuming to follow multiple steps each time for a payment. In such cases a single-tap check out and consolidated bill is the most attractive option to the customer.

Along with this, consumers who are in the ‘low value high frequency’ vertical are immediate targets to the product, says Chaitra Chidanand, co-founder of Simpl.

“This vertical is where cash is the most prominent. Handling cash always poses problems. To get people to move away from cash, you need to give them an alternative which is as frictionless as cash, as liquid as cash, and as easily available as cash,” added Chidanand.

The third category of customers are first time online users who want to touch and feel the product before they pay for it.

“We want to provide users a privileged experience for payments, just like frequent flyers would experience privileges while checking-in at airports. We aim to recreate the kirana store experience where a shop owner allows you to take products home and pay later because he is acquainted with you,” said Pallav Jain, Head of Consumer Business, PayU India.

Late payments?  

Different portals have different payment structure. With ePaylater, a consumer has to settle the bill within the next 14 days; with Simpl and LazyPay, there are two bill settlement cycles—1st and 15th of each month. In the case of late payments Simpl claims it charges a penalty of up to Rs. 250 while ePayLater charges a flat Rs. 20 or a penalty rate of 36% per annum for the number of days the amount is overdue.  The companies can also take legal action for prolonged non-payment. LazyPay charges Rs. 10 per day for non-payment.

 Why yet another payment mode?

On the merchant side there are three main reasons for adoption of the payment option. Portals typically invest a lot on customer acquisition. A quick and convenient payment mode ensures the customers come back for another purchase.

The second reason is failure in conversion on transactions due to either card abandonment or technology issues. “In the e-commerce funnel, every step added to the funnel leads to drop off. By adding this one-click method of payment, we reduce the steps in the funnel effectively to zero. This leads to more sales and revenues for the merchants,” added Chidanand.

According to Chidanand, the portals they work with has seen 50 to 80 percent increase in conversion rate depending on the vertical. The maximum conversion is seen in the food vertical.

According to LazyPay, in 2015, the ecommerce sector suffered $4.4 bn revenue loss due to 20-30 per cent of transaction failure at the payment stage.

In fact even Voonik, a fashion portal that gives select users the option to pay later, feels that it helps them achieve better conversion rate. Currently, the portal gives the option to pay later only to those who have already got an approval from the service provider and on low value items.

“We see great potential in it, similar to what happened with ‘bill me later’ in the U.S. However, it is in early stages in India and hence we do not have enough information on the credit limit each user has. That is the reason we currently have the option only on lower value items typically between Rs. 700 to Rs. 1000,” said Sujayath Ali, founder, Voonik.

Ali added that he expected the return rate on cash-on-delivery also to reduce due to this option. “The problem of change especially after demonetization leads to a lot of returns in COD. With the option to pay later, this can be solved to a great extent.  It guarantees us a conversion, and ease of payment to the customer,” Ali added.  

Edited by: Benoy P. Jacob