What is Pay Later? How Do Pay Later Apps Work?

Pay Later, also known as Buy Now Pay Later (BNPL), is a payment mode that enables customers to buy a product or service instantly by paying for it later. Let’s understand what is Pay Later, what it means and how do pay later apps work.

What is Buy Now

Pay Later, is also known as Buy Now Pay Later (BNPL). It is a newly emerging payment option that allows customers to purchase items today and pay for them later. It’s a short-term financing option where a third party pays on behalf of customers. The customers return the money to these third parties later after a specific period that is pre-agreed by both parties. Usually pay later allows one-time later payments. However, some BNPL apps in India offer partial payments/EMI payments as payment options as well to their customers.

It usually comes with no additional cost in the form of interest or fees. Several BNPL companies provide zero-cost or interest-free pay-later options. This payment option has gained extreme popularity, especially with e-commerce businesses and various fintech platforms offering the same.

This is why BNPL has become a popular option for customers who may not have the funds available to make full upfront payments. Pay Later apps enhance the affordability of customers by spreading the cost of their purchases over a longer duration. On the other hand, businesses that enable BNPL (especially in EMIs) can expand their customer base. It is because this payment option makes their products/services more accessible and affordable.

As buy now pay later in India typically comes with no extra cost, hence, BNPL has grown into a preferable alternative to credit cards¹.

Additional Read: How to Enjoy Higher Revenue With BNPL?

How Does Pay Later Work?

As discussed, this payment option allows customers to purchase online or in-store without paying the total costs all at once.

So, usually pay later apps to associate themselves with one or more banks, NBFCs (non-banking financial companies) or other lending institutions. These entities can pay on behalf of the customers to business merchants like e-commerce and other online store owners. For doing so, they verify the identity and details of customers like name, phone number, bank details etc. through Aadhaar, PAN and other such documents. This is to ensure that customers are authentic and not any fraudsters or blacklisted persons.

Now, to use a BNPL app, the customer needs to ensure certain things as below –

• Download a pay later app and create an account on the app. For this, customers may need to link their bank account or credit/debit cards
• Customers’ payment behaviour determines their creditworthiness and the terms of their pay-later plans. Essentially, their credit scores contribute to it their limits
• Once the customer is approved for a BNPL plan, they can start making purchases. While purchasing, customers need to select the pay later payment method during checkout at the payment gateway. With several pay later apps in the market, customers may have an account with more than one buy now pay later app. They can choose among multiple BNPL apps at the time of payment
• The customer will typically have to pay back the amount within the due date. If they do not make the full payment, they can make partial payments provided the pay later app has this facility. Otherwise, if the BNPL app has the provision for EMI/no-cost EMI, then customers can also opt for the same

Many e-commerce websites and online stores enable BNPL options during the checkout process. It redirects to the BNPL website or app page, where customers can create a profile. Usually, there is quick verification and customers are good to go.

If you are already a customer of a particular BNPL provider, the payment becomes all the more seamless.

Some of the examples of the several BNPL players in the market are Zest Money, LazyPay, Simpl, and OlaMoney. Zest Money allows EMI options to customers for payback, while OlaMoney allows one-time due payments. Simpl, on the other hand, allows full or partial payments.

Eligibility Criteria for BNPL

To use pay-later (BNPL) services, you must meet the following eligibility requirements:

• Age: You must be at least 18 years old to use the service. Some BNPL lenders cap the maximum age, usually at 55 years.
• Credit score: Credit score is based upon a customer’s record of timely payments of credit card/postpaid bills or EMIs. Delayed or missed payments lower the credit score which means low creditworthiness of the customer. Credit score determines how likely the customer can pay off loans or the given credit in future. Therefore, people with good credit scores are more likely to be approved for a BNPL plan.
• Income: Customers’ income also determines if they can pay off the EMIs or the credit that pay-later apps offer to them. It also defines the credit limit that BNPL apps can approve. Customers with higher disposable income are more likely to be offered the buy now pay later plan. The lender ensures that the customers have sufficient income to repay the credit they use.
• Identity Verification: You must provide proof of identity and address to the BNPL companies. Apart from that, they may do PAN Verification and verify bank account details, bank statements, income proofs, etc. to ensure the authenticity of the customer

What is the Difference between Pay Later (BNPL) and Credit cards?

Though both offer short-term financing, there are some key differences between Pay Later (BNPL) and credit cards: