E-commerce platforms like Amazon and Flipkart are doubling down on their ‘buy now pay later’ or embedded lending options for consumers given that over the past year, such credit product options have exploded as transactions on e-commerce websites gained greater ground over physical retail stores. The e-commerce players are also looking at partnering with banks and non-bank lenders to extend flexible and innovative financing options for their merchants and sellers on their platforms.
While banks have enabled BNPL (buy now, pay later) options and equated monthly instalment (EMI) options on debit cards and credit cards at the checkout point on e-commerce platforms, such options are only available to existing customers who have a good credit history. According to the e-commerce players, speaking at the Digital Lenders Association of India’s 2021 Conclave, by enabling BNPL and EMI payment options first time borrowers or new-to-credit customers are able to access micro-credit or small ticket loans to fund their purchases across a range of products.
“While EMI products are enabled by third-parties and function at scale, the problem is that banks or credit card companies keep changing the terms and conditions and eligibility criteria. On the other hand, Amazon Pay Later helps us engage with customers more in terms of repeat buying and utilising the credit limit for multiple products,” said Vikas Birthire, product lead, Amazon Pay Later.
He said that customer engagement and purchases actually increases through BNPL or embedded lending options compared to options provided by traditional lenders. “If a customer buys a phone on EMI once in a year, they can purchase smaller-value items through embedded credit products multiple times,” Birthire said.
“We see customers who use pay later purchase 5x more than regular customers. They spend 30% higher than regular customers. In terms of EMI products, we found that many customers are actually first-time credit customers and do not have credit bureau scores. At least 1 in 3 products now are being sold on a EMI basis,” said Sonal Kapoor, director of consumer lending, Flipkart.
“Our primary relationship with customers is through the e-commerce platform and with Amazon Pay we can improve the payments experience, whereas a financial relationship is a bit more complicated and expectations are much higher”, said Birthire. “The choice of the partner depends on the technology strengths of the lender and ensure the cost of lending is low for customers. You need to have enough lenders to be able to supply credit at the scale at which e-commerce platforms like ours operate, ” he added.
While BNPL and other credit options are all the rage today for consumers, small-medium-enterprises and merchants on e-commerce platforms are now also being targeted with financing options. Using transaction data available on their platforms, e-commerce platforms are building partnerships with banks and non-bank lenders to provide supply-chain finance or working capital loans for their sellers and merchants.
“COVID-19 has impacted SMEs significantly, so our focus is to figure out how to provide them working capital loans,” said Kapoor. She said that while control over the lending journey on the consumer-financing side is important, it is not the same on the seller-financing side. “We realised over time that there is not really a need for a tight journey between the seller and lender but that there is need for multiple financing options. So our partners leave the choice to seller on the type of financing they want depending on how much business they do on the platform,” Kapoor explained.
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