Today pay-later services are available for practically anything under the sun.
Today pay-later services are available for practically anything under the sun. These services are no longer limited to big investments like buying a house or a car — small purchases like clothes, gadgets, movie tickets, even food can now easily be availed. According to a 2018 Assocham estimate, about 12 crore online shoppers across the country use pay-later services for bill payments, food ordering, travel, and movie ticket bookings.
Experts believe, with the need for proper credit score and credit rating, credit card applications are turned down a lot in India. Pay-later companies are filling that gap and taping the market for formal microcredit, especially for people who do not get credit card sanction. Focusing firstly on the convenience, pay-later services offered by start-ups such as Lazy Pay, Simpl, and ePayLater provide credit-based payments on one click.
These pay-later services basically give you a small amount of credit on the spot, upon sign-up. The hassle of entering one-time passwords (OTPs), submitting Know Your Customer (KYC) documentation or re-entering account details as with cards and net banking is eliminated.
Chaitra Chidanand, co-founder, Simpl, says: “The pay-later service operates like a ‘digital khata’. A ‘khata’ is the traditional way and has always been prevalent in India, based on the trust factor, to pay for multiple orders at once.” She adds, “Users do not have to deal with payment failures, repetitive verifications and other factors that ruin the buying experience. The main advantage is that you can skip the onerous payment process every time you transact.”
Pay-later services are also faster and easier to get than traditional small-ticket loans. Unlike the traditional mediums, where the borrower has to provide various details, including the amount to be borrowed, credit score, and end-use of funds, pay-later apps provide a credit limit based on the user’s personal and bank details. The credit limit, however, is decided based on the borrower’s repayment capacity analyzed through the details provided during registration.
The credit limit of borrowers is also upgraded from time to time, based on their repayment behavior. Hence, people who are new to credit get lower credit limits for their first few transactions. However, the limit is enhanced when the borrowers repay EMIs on time, and can later use this service for larger-ticket purchases as well.
Depending on the customer’s credit profile and usage, most of these companies extend short-term loans, often as little as Rs 300, going up to Rs 30,000. The repayment cycle is around 15 days, unlike the monthly cycle of credit cards. Chidanand further adds: “Pay-later services are best suited for cases where the transaction amount is low, such as food ordering, grocery, and shopping.”
Most of these start-ups offer 15 to 20 days of interest-free period and additional penalty in case you miss the deadline. For instance, LazyPay gives defaulting users three extra days to make the payment, including a daily penalty of Rs 10. ePayLater offers a 14-day interest-free period and charges a late payment fee of 3 per cent per month in case you miss the repayment date.
Just like using a credit card, you can also club all your purchases, and pay it all together at regular intervals with these services. These apps give you the flexibility to make consolidated payments. For instance, LazyPay offers consolidated invoice summaries on the 1st and 16th of every month.
These startups earn their revenues from late payment penalties, interest (around 3 per cent) from late payers and a commission from merchants. Many of them have partnered with big brands like Myntra, MakeMyTrip, Flipkart, Xiaomi, and Amazon to provide instant credit through their platforms.
When compared with mobile wallets, experts point out that mobile wallets can only be used to make payments against the money in hand, whereas pay-later services offer instant credit to users, irrespective of the amount in hand.