Buy now, worry later?

Let me make the understatement of the century — we live in a materialistic world. This rampant consumerism conditions us to desire 'things' in life. Could we be equally happy while living a spartan, more contented life? Sure, but it's tough to achieve that high level of transcendence that has been the single-minded pursuit of ascetics and a few humans of elevated consciousness. For lesser mortals like us, it's the inexorable hedonistic quest for the 'good life'.

In this race to achieve materialistic happiness, we often live beyond our means. The spending habits of individuals has changed from a few decades ago. It was only when the popularity of credit cards caught on in India that we spent more and more, buying things that we couldn't afford and frankly, didn't even need. I remember many people, including my own folks, with maxed out credit cards having spent on items that were superfluous to our lives. In the initial days, few understood clearly how a credit card worked; there was no social media or proliferation of online news. The credit card seemed more like a tool of power to the middle class enabling it to buy commodities that they dreamt of but dared not splurge on. It also meant freedom, breaking the economic shackles that dictated their staid daily existence. Today, the credit card has lost a lot of its sheen, and now, there's a new kid with fancy clothes on the block — Buy Now, Pay Later (BNPL).

The BNPL sector mushroomed in the US and China and now has taken India by storm. Nouveau lenders that offer BNPL are attracting huge investments, and to keep pace with fintech startups, traditional banks are being forced to play catch up. BNPL is set to grow ten-fold to USD 45-50 billion by 2026 from the current USD 3-3.5 billion, according to the research firm, Redseer. The number of BNPL users will also increase from 10-15 million to 80-100 million in the next five years. Edelweiss Research predicts that BNPL will record a CAGR (compound annual growth rate) of 45 per cent and hit USD 15 billion by 2024.

All-in-all, it's a booming industry alluring consumers and investors alike. The ruse is simple — want to buy something, go for it, and the price will be converted into easy monthly EMIs. The catch is slightly more complicated — if you can't pay these EMIs on time or choose a longer duration of repayment, you'll dish out hefty penalties and insanely high-interest rates (20-30 per cent). But consumers, especially younger ones who have had a crappy few years of earnings and growth, don't read the fine print. And even if they do, they have the bravado of youth to lull them into a false of confidence — 'Of course, we'll pay it back', unless they can't. 86.6 per cent of Chinese youth are debt-ridden, cites a recent report. The fear of increasing consumer debt is hardly being spoken about in India, though globally we are hearing experts caution about risks of default and debt reporting that is not transparent.

Except for a few articles of sage advice, the rest are riding this new fintech wave. The availability of credit is obviously a saviour for many, especially the pandemic-hit MSME (Micro, Small and Medium Enterprises) sector and even local mom-and-pop stores. Diwali sales this year was buoyed by buy-now-pay-later as more people opted for these bite-sized loans. According to a survey by Research and Markets, such payments have been growing by 20-30 per cent in the last three years and will rise by 66 per cent this year to touch USD 11.6 billion.

Covid-19 has led more businesses and consumers to go online and the availability of buy-now-pay-later has gained acceptance due to the digital shift. BNPL has also emerged as an alternate credit choice especially for those who aren't eligible for a credit card. Add to this the ease and speed of using BNPL, and it explains the segment's growing success. However, there are dangerous pitfalls that must be considered while opting for BNPL. Be prepared to pay the instalments on time, or else it would affect your credit score. The best bet is to opt for the shorter, interest-free instalment period and meet the EMI dates. Late fees and penalties are crazily high, so you definitely want to steer clear of that. With BNPL, you're also more prone to do impulse buying; it's sensible to control whims and adhere to a plan that takes into consideration your earnings, savings, and expenditure. Ask yourself if BNPL is the right option for you, and if it is, then don't forget to follow these tips. Or you could go old school like me, and live within your means.

The writer is an author and media entrepreneur. Views expressed are personal.