Sunil Rongala comes with 15 years of experience in macroeconomic research, risk management and Analytics. At MRL Posnet, Sunil was part of the founding team and Head of Risk Containment and Analytics. He was pivotal in building the risk engine Analytica which has best-in-class metrics and enabled the company to provide risk underwriting services to multiple banks. His prior roles included the Asia-Pacific Economist for Deloitte LLP and Chief Economist of the Murugappa Group in Chennai. Sunil holds a Post-Graduate Diploma in Economics from the London School of Economics and a Ph.D. in International Economics from Claremont Graduate University, California.
Well before the pandemic hit, e-commerce growth in India has been on a rapid tempo for the past few years. The pandemic only accelerated the growth of e-commerce given the convenience of this medium. Similarly as the growth in e-commerce has accelerated, so has the growth in credit accelerated in the past couple of years. Credit taken by people is largely for white goods to smooth out expenditure – like any loans, people need to be prudent when taking out loans because these are essentially loans.
Credit in e-commerce is present in a number of ways. The obvious one is the use of credit cards which gives customers sometimes up to 40 days to pay back their dues albeit they have to pay back in a lumpsum. There are also EMI options on both credit and debit cards and customers usually pay back in an agreed number of months usually at a small fee and in some cases no fee because it could have been subvented by either the brand or the card issuer. However, the new kid on the credit block is BNPL or Buy Now Pay Later.
There has been an explosion of BNPL in the recent year to two and a number of Fintechs have joined the fray and so have large e-commerce players like Amazon and Flipkart. The basic premise of BNPL is that buyers buy their desired good and pay back the provider in 3 equal instalments at no fee; a fee usually kicks in post that. There are obviously different models for different BNPL providers but this is more or less the basic model. While BNPL looks and smells like credit card EMI, the key difference is that BNPL has spread to a much larger than credit cards. One of the reasons why BNPL and therefore credit has boomed in the e-commerce space (both web and mobile) is that BNPL use cases are generally skewed towards that space – examples are food delivery, groceries etc.
A recent report suggested that BNPL is growing at 65% YoY and is expected to touch $40 billion in 2025-26 – it is expected to be about $7 billion in 2022. The expected 65% yearly growth is because of 2 factors; massive adoption and huge funding. As far as adoption is concerned, fintechs have taken great pains to increase customer delight especially when it comes to onboarding. In most cases, it takes only a few minutes to sign up with a BNPL provider and have the ability to transact post that. It also highlights the latent demand for credit in the country and the BNPL industry, because of its agility, has been able to cater to this demand. In terms of funding, there have been multiple news reports of BNPL fintechs raising large sums of money.
Like anything to do with lending, the long-term growth will depend on whether BNPL providers are able to recover dues from their borrowers – BNPL providers do claim to have in-house metrics to measure customer credit-worthiness. However, the same could be said of credit card providers in the 2000s and they landed up with huge NPA problems in the late 2000s. All said, given customer behaviour and the way the BNPL product has been structured, it will continue to grow by leaps and bounds.