{"id":19790,"date":"2022-02-23T10:08:50","date_gmt":"2022-02-23T10:08:50","guid":{"rendered":"https:\/\/habiletechnologies.com\/?p=19790"},"modified":"2022-07-19T06:45:36","modified_gmt":"2022-07-19T06:45:36","slug":"5-use-cases-drive-roi-bnpl-lender","status":"publish","type":"post","link":"https:\/\/wiki.cloudbankin.com\/index.php\/2022\/02\/23\/19790\/5-use-cases-drive-roi-bnpl-lender\/","title":{"rendered":"5 Use Cases to drive ROI through BNPL as a Lender"},"content":{"rendered":"\t\t
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\u00a0<\/p>

The pandemic-induced economy has expanded the credit market in India with 64 million credit cards issued in the past year. But the credit penetration rate remains at 5% of the country\u2019s population which has resulted in multifold growth of BNPL (Buy Now Pay Later).\u00a0<\/span>
The current year has been promising for BNPL in the Indian economy. The surge in e-commerce and online shopping during the pandemic has further projected the growth of the <\/span>BNPL market from a share of 3% to 9% in 2024<\/span><\/a>.\u00a0<\/span><\/span>
As a lender, the opportunity for digitizing your credit ecosystem is plenty but how\u2019s this going to benefit you? a<\/span>
Read on.<\/span><\/p>

Buy Now Pay Later (BNPL)<\/strong><\/h3>

Buy Now Pay Later (BNPL)<\/span><\/a><\/span> is short-term financing or credit option that allows the customer to make purchases and pay installments at a future date without paying extra charges. In layman\u2019s terms, a consumer wishes to buy a product. He makes use of a Buy Now Pay Later option and makes the purchase where he need not pay any or lower amount at the time of purchase. He could pay the balance later on a particular date at a rate as agreed at the time of purchase.\u00a0<\/span>
Lenders providing the BNPL service can cut overhead costs incurred by availing Credit EMI, which increases the profitability and ROI as a whole. They can further increase their revenue by charging processing fees for this service. Let us see how it works.\u00a0<\/span>
Before getting into the profitability, let\u2019s quickly understand how this benefits both the borrowers (consumers) and lenders.\u00a0<\/span><\/p>

Benefits of BNPL to Borrowers and Lenders<\/strong><\/h3>

\"\"<\/span><\/p>

Due to the fact that there are thousands of transactions taking place between lenders and borrowers every day, this data provides the foundation blocks towards building a sustainable integration of BNPL modules into lenders’ Loan Management Systems.<\/span><\/a> The financial institution or lender gets access to the borrowers\u2019 credit information which can be utilized for cross-selling other financial products.\u00a0<\/span><\/p>

Using the data available and analyzing the customer pattern, the bank or NBFC will be able to supply the right product at the right time and earn ROI of approximately 2.5% to 8% (Subvention Rate & Processing fees) or more than 15% returns depending on the volume of their businesses.<\/span>
As a lender, what are the different ways BNPL can be applied to your consumers? Let\u2019s walk through the nuances of\u00a0 BNPL with the help of some common use cases.<\/span>
Raj wants to purchase an iPhone worth 65,000 INR which has been on his wishlist for quite some time. He explores different credit options available for his product within his line of credit.\u00a0<\/span>
Let\u2019s assume Amazon is the seller here offering BNPL service for the product he wishes to purchase.\u00a0<\/span>
Here are a few ways for a Lender to offer a BNPL service to Raj.\u00a0<\/span><\/p>

Use Case 1<\/strong><\/h3>

In the first scenario, Raj checks for his credit limit based on which he will be eligible for the BNPL service. Based on his financial data, the lender will set a credit limit. He then purchases 65,000 INR by paying a processing fee.<\/span>
The lender sets the due date for repayment of Raj’s credit via BNPL and makes the payment on or before the due date.\u00a0<\/span>
In a nutshell, the Lenders can earn 2% processing fees on each transaction and scale their profitability. Even 1000 transactions in a day, similar to Rs. 65,000 each can fetch them an ROI of 25% considering a 30-day repayment period.<\/span><\/p>

Use Case 2<\/strong><\/h3>

In this scenario, Raj\u2019s credit limit is set, and he purchases the product by paying a processing fee. When he\u2019s unable to make the payment on or before the due date, he requests the lender for an EMI option.\u00a0<\/span>
The lender converts the repayment option as an EMI, which must be paid within a stipulated period. The EMI levied on this Credit method could be interest-free, or have a small interest rate, according to the lender\u2019s business policy.\u00a0<\/span>
The profit margin may look a bit squeezed in this case, but it prevents the customer from defaulting and brings down the recovery cost for the lender.\u00a0\u00a0<\/span>
In this use case, as mentioned above, the lender will earn interest or if the lender defaults, then finance charges are applied on the outstanding amount, which adds to the charm of BNPL. In the case of zero-interest EMI schemes, usually, the margins are built into the cost of the product itself; for eg., if the iPhone costs INR 65,000 if you pay 100% up-front, it may cost you INR 66,000 if you pay with an EMI scheme.<\/span><\/p>

Use Case 3<\/strong><\/h3>

In the third scenario, Raj\u2019s line of credit is analyzed, and he makes a purchase by paying a processing fee. A due date will be set before which he should ideally make the payment. If he fails to pay on time or has surpassed the due date, the customer default occurs. The default fee could further be charged post which the payment method will be converted as an interest-free EMI. Let us look at this use case:<\/span><\/p>