‘Do not embarrass us by asking for credit’ — a variant of this sign hangs on the wall of almost every shop in India. The ubiquitous sign indirectly tells shoppers to pay up whenever they purchase goods. There is no credit in taking credit, as they say. Yet, fintech startups such as ePayLater, Simpl and LazyPay as well as lifestyle services giants including Flipkart and Ola, are telling customers to ‘pay later’. This is a major change — paying later signifies giving some sort of a loan. Yes, the new trend of deferred payments is definitely here. Let us examine what it means for your lifestyle, saving habits and credit approach.
Do you know that when you take an app-based cab ride you can pay later for the same? This facility is known as Ola Credit. It is a feature where you can take multiple rides without paying. You’ll only have to pay at the end of the credit cycle, or if you max out your limit. And all this at no extra cost or interest, just like a post-paid telephone bill.
This year, Flipkart launched its Pay Later concept. Flipkart users already had Flipkart’s Debit Card EMI, No Cost EMI and Buyback Guarantee. But Pay Later lets customer receive the product, experience it and, pay for the products all in one go when it’s convenient for them. This is just like your khaatha (register) at a neighbourhood grocery store.
ICICI Bank allows you to book your train tickets at irctc.co.in and make the payment using ePaylater. ePayLater works like a Credit Card which gives you a credit limit of up to Rs 10,000. The bank website says it provides you 30-days interest-free credit (or digital credit) and you can repay the spent limit at any time within 30-days of purchase.
PayU India has launched ‘LazyPay’ that allows consumers to make small value transactions on e-commerce platforms, food delivery, grocery, essential supplies, taxi aggregators and cinema halls etc. Their product is similar to utility bills as consumers will receive a consolidated invoice for all their purchases through a billing cycle. This solution allows consumers to pay later (consolidated invoice summary generated on 1st & 16th of every month) for a purchase ranging from Rs 500 to Rs 2,500, and even up to Rs 15,000, depending on the profile of the customer.
Simpl lets you transact with one-tap on various websites and apps. All your purchases get added into one convenient bill, which you pay at one go. The bills are generated every two weeks — on the 15th, and on the 30th/31st. Unlike cards and net banking, you can skip multiple verifications and repeated OTPs (one time passwords). Unlike wallets, you aren’t forced to refill first.
How do consumers gain
‘Pay later’ offerings aim to eliminate the dependencies on any third party payment service providers such as payment gateways, banks etc. at the point of transaction. In this way, they strive to provide a better transaction success rate.
As you can see, all the ‘Use/Buy Now, Pay Later’ offerings have some similarities. These are mostly advantages and improvements over existing payment systems.
Firstly, all ‘pay later’ offerings are a form of a credit or loan. Think of these schemes as small loans given to credit-worthy customers.
Two, these offerings are not given to everybody. Some companies, helped by data analytics, offer such credit to customers they feel are most likely to repay.
Three, many of the offerings are designed as a way to pay for many items at one go. For instance, the ‘pay later’ offerings want you to pay Rs 1,000 or more than pay Rs 100 ten times. For customers who are afraid of their money getting stuck in frequent digital transactions due to payment gateway issues or bad network connectivity, this is a really good alternative.
Fourthly, just like a credit card most ‘pay later’ offerings allow you to pay back the amount right after the transaction until the next due date to avoid late penalty charges.
Five, there are penalties and monetary fines for not paying up on time. ‘Pay later’ schemes are not free money. If you have used it, you need to pay on time or face consequences. ePayLater, for instance, levies a penal interest at the rate of 3 per cent per month for the days that the amount stays overdue on a pro-rata basis if you fail to make a payment within 14 days.
Taking any form of a credit is both a boon and bane. ‘Use Now, Pay Later’ schemes are designed for credit-worthy customers. The financial institutions involved are also prepared to charge interest in case you want to repay the amount over time.
If you display good credit behaviour, you are rewarded. However, if you start delaying payments, there are consequences. Many service providers like Simpl determine your spending limit based on your usage. This includes your repayment behaviour. If your spending limit has been reduced, it’s mostly due to repeated delayed payments to Simpl. Also, a ‘pay later’ offering bill is legally enforceable.
‘Pay Later’ schemes offer you both the speed of payment and also the convenience of never having to miss out on your favourite products. Since they are digital credit, customers can pay after you have availed the service. Also, some service providers give you incentives to encourage good behaviour. For instance, Lazypay has cashbacks which are credited in your LazyPay account within 2 days. Do note that your cashback will be immediately adjusted in your current outstanding amount. If you have already paid your dues, you can use this amount for next purchases with LazyPay.
Generally, the interest-free period for ‘Pay later’ offerings is not as long as those offered by credit cards. Credit card companies can offer you up to 50-60 days of grace period, but most ‘pay later’ options provide 14-30 days from the date of order to settle your bills with them.