Buy Now Pay Later: A Tough Rival for Credit Card Companies? 


What do you do when you want to purchase something outside your financial limit or face a sudden money crunch? Decades ago, people used to run to a nearby moneylender who charge high-interest rates. But things are much simpler now! Credit cards allow you to borrow money for almost a month at zero interest rates. But now, new-age fintech firms have taken things to a whole new level with Buy Now Pay Later (BNPL)!

In this article, we analyse the penetration of credit cards in India and how BNPL is disrupting the finance sector.

Credit Cards in India

The key eligibility criteria to obtain a credit card are a regular source of income and a decent CIBIL (or credit) score. You can conduct transactions within a fixed limit for over a month and only need to settle dues before the next billing cycle. Despite its attractive features, it is interesting to note that there are only three credit cards per 100 people in India! Credit card penetration is very low compared to other countries as shown below:

Credit ard penetration in the world, lead by japan with 68%, India has only 3%

The low penetration is primarily due to strict credit score eligibility and lack of financial knowledge. The number of outstanding credit cards in our country is growing at a 5-year CAGR of 20%. It essentially means the credit card industry is doubling itself every five years.

Bar graph showing number of credit card in india from 2013 to 2022. it started with 19.5 million and reached 75 million

The transaction value of these credit cards is way higher than debit cards in India. As of March 2022, there are 73 million credit cards and 917 million debit cards. Now, let us look into the transaction per card in March.

how much rupees is spend per credit card and debit card. in credit card users average spend 14,546 wheras in debit card 692

The chart shows that Rs 14,546 was spent per credit card, which is 20 times more than that of debit cards. There are two reasons for this trend:

  1. A credit card gives you an interest-free loan, and you can purchase products without cash.
  2. The arrival of UPI payment has disrupted the debit card transactions in shops, e-commerce, etc.

Major Credit Card Players - An Analysis

In India, HDFC Bank, SBI, ICICI Bank, and Axis Bank are the top issuers of credit cards. It is interesting to note that HDFC Bank still leads the chart even though it got a ban from RBI for issuing new credit cards in Dec 2020. The ban was removed in March 2022.

There are two major ways card issuers make money: one is the interest that the user has to pay when they fail to settle the credit bill. Annual fees, late fees, and commissions are the other source of income.

market share of credit cards in inda, lead by HDFC bank with 22%

Let’s take a look at the customer base of credit card companies:

SBI cards customer by age, only 20% customers are below age of 30

There is a large number of millennials and gen- z that are ready to spend. To tap this potential, BNPL was born.

Buy Now Pay Later -  A Brief Analysis

Buy Now Pay Later (BNPL) systems are offered by leading financial technology companies (fintech) in partnership with non-banking financial companies (NBFCs). In India, ZestMoney, Lazypay, Amazon Pay, MobiKwik, and Flipkart Pay Later are some of the key players in the BNPL industry. They provide users with a small-ticket credit that can be repaid without interest. It is basically a loan provided by the NBFC, and the fintech provides a user-friendly interface. 

For example, If you purchase an electronic gadget from Flipkart for Rs 10,000 and opt for Pay later in the payment section, you only need to pay the amount either within a month or through EMIs. In the backend, you are awarded a loan from a partnering NBFC. That means you are liable to pay back the loan to the NBFC through the interface (in this case, Flipkart).

The Way Ahead

BNPL is currently estimated to be a $4 billion industry and is expected to reach ~$40 billion by 2026!

You can easily get access to credit through BNPL options within just a few clicks, whereas there is a long and tedious procedure to get a credit card. Secondly, you don't need to have a good credit score for BNPL. Usually, BNPL companies give you a fixed credit size of Rs 10,000-60,000. Credit cards demand a good credit score for a decent credit limit. 

However, BNPL has its share of disadvantages as well. When fintech firms partner with multiple lenders with better lending rates, there is a chance for your credit to transfer from one lender to another. So this can be reflected in your credit history. Secondly, BNPL is now only practical for online purchases. Companies are trying to enable offline purchases by publishing pay later cards. Lastly, even though the customer journey is much better in a BNPL service than in a credit card, reporting customer grievances regarding credit issues can be a daunting task.

What are your views on credit cards and BNPL? Do you use BNPL services? Let us know in the comments section of the marketfeed app.

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