Category: Banking & Finance

In their search for new customers with good credit behaviour, banks are adapting the ‘buy now pay later’ (BNPL) model offered by fintechs to their customers while they shop. Some lenders are also working to expand the scope of their debit card EMI facility to cover a larger suite of purchases.

Both strategies are aimed at analysing behavioural trends among the younger segment of the population, many of whom have been introduced to deferred payments through the BNPL route. Most of them do not have a credit card or any record of their credit behaviour.

For instance, Axis Bank has launched a BNPL product aimed at new-to-bank customers and other banks’ customers through its subsidiary Freecharge. The product offers a one-month easy payment option to customers.

Sameer Shetty, president & head – digital business & transformation, Axis Bank, told FE that the lender sees it as a way of extending credit to people it would otherwise be unable to lend to as also to those who see this as a convenient way of paying at checkout. “Our view is that BNPL is a great way to build a funnel for credit cards and personal loans. If somebody does well on BNPL, that person can then get a credit card, having shown some repayment behaviour, which gives us comfort,” Shetty said.

Similarly, ICICI Bank’s PayLater product is a digital credit facility designed for customers in the age bracket of 25-30 years. The bank’s EMI on debit card option also targets younger customers, though it is open for customers from all age groups. PayLater brings more customers into the credit ecosystem and helps them build their credit scores, said an ICICI Bank spokesperson. In the process, it helps them build larger credit relations like home loans, the spokesperson added.

Obviously, banks understand the value of cashing in on a payment trend that has gained currency in the post-Covid era. In a March 2021 report, financial technology solutions provider FIS said BNPL is the fastest growing online payment method in India, although it accounts for only 3% of the market at present. “Buy Now Pay Later will be the fastest-growing online payment method (53% CAGR) and triple its market share to 9% by 2024,” the report said. On the other hand, bank transfers were found to be declining slowly as mobile wallets grew.

Lenders who were already offering an EMI option on debit cards have broadened the set of use cases. Earlier this month, Kotak Mahindra Bank announced that all of the bank’s eligible debit cardholders would be able to avail the debit card EMI facility on all purchases of `5,000 or more at all offline and online stores across the country. Earlier, the option was available only at particular outlets based on a tie-up between the merchant and the bank.

Ambuj Chandna, president – consumer assets, Kotak Mahindra Bank, in a statement said the move was in response to an increase in demand from the bank’s customers for EMI-based transactions. “Further, with debit cards far outpacing credit cards in terms of number of cards, this initiative opens doors to affordable and convenient access to credit to a large, hitherto underserved market,” Chandna said.

Despite the increased usage of BNPL and debit card EMIs, banks do not see credit cards going away anytime soon.
All three are likely to coexist for the time being. The ICICI Bank spokesperson pointed out that while Paylater offers credit on small-ticket items, the credit lines available for EMI on debit cards are much lower than those on credit cards.

Besides, credit cards have an important role in banks’ branding strategies. Axis Bank’s Shetty said credit cards have a strong value proposition for customers and in banking, credit cards are the product with the best recall. “At least in the medium term, we do not believe there would be a migration from cards to BNPL,” he added.