BNPL: early results are not that exciting as yet. Buy now pay later (BNPL) loans are gaining healthy traction in the Indian market, according to preliminary data from TransUnion CIBIL. We also observe that: (1) BNPL has a lower share of new-to-credit customers, (2) the typical BNPL consumer is not very different from a consumer of other unsecured retail loans, and (3) the BNPL customer has a strong affinity for other unsecured loans as well. Delinquency rates are high. The business model around BNPL is still at an early stage of evolution and, perhaps, still not fully developed.
BNPL consumers are comparatively younger and higher in risk tier at origination
The age-wise mix of BNPL and non-BNPL originations indicates some skew in BNPL towards a younger set of borrowers, but that skew is not extremely high. The proportion of borrowers under the age of 25 stood at ~26% for BNPL and ~19% for non-BNPL (credit cards, consumer durable loans and personal loans) originations. Similarly, the proportion of new-to-credit (NTC) consumers was similar for BNPL and non-BNPL originations of unsecured consumer credit. However, here as well, there exists a slightly higher skew in BNPL towards near-prime and sub-prime borrowers. Average credit balance for a BNPL consumer (~Rs0.19 mn) is also very similar to that of a non-BNPL consumer. Thus, a typical BNPL consumer is not significantly different from a typical consumer of other unsecured credit products - on parameters like age, risk tier or leverage. In spite of these similarities at the time of origination, consumers who hold a BNPL account show higher (as compared to consumers who don't hold a BNPL account) delinquency performance on their credit card and personal loan accounts. We believe that an income-wise or wealth-wise breakup of customer base would provide a better understanding of customer targeting in BNPL.
BNPL consumers seem to have adequate access to other credit products already
The proportion of consumers with other live credit accounts stood at ~75% for both BNPL and non-BNPL originations. Similarly, the proportion of consumers who already had at least one live credit card account stood at ~35% for BNPL originations and ~25% for non-BNPL originations. This data indicates that BNPL lenders seem less focused on driving credit inclusion than anticipated earlier. Their focus is probably on acquiring new customers through a product that allows them to underwrite on a transaction basis, limiting the risk involved.
Credit cards are unlikely to be hurt by BNPL basis this study
Data indicates that BNPL consumers are more likely (than non-BNPL consumers) to open a new credit card account within six months of BNPL loan origination. Further, the propensity to avail a personal loan also seems higher for BNPL consumers. These data-points indicate that BNPL is indeed serving as a funnel or gateway to credit cards for many consumers, while also giving credit card issuers more comfort on the borrower at the time of underwriting. Further, we do not observe any meaningful impact on credit card balances after consumers have availed a BNPL facility. Thus, it does not seem that a credit card consumer loses affinity for the card after the use of BNPL. Both products probably serve a distinct purpose for him. We reiterate our thesis that BNPL (in most forms) can serve as a wonderful product for consumers to avail short-term credit, establish a credit history, enjoy superior payment experience and also pave the way for them to avail credit cards. We continue to watch the evolution in the BNPL space as this product continues to gain traction, but we are less worried as of now about BNPL disrupting the credit card model. The key risk for card companies is whether BNPL companies start building credit card-related products thereby competing directly with the traditional card players. |
