Micro credits have been a part of our lives since time immemorial. Now the online world is adopting the same — buy now, pay later — the new trick in the e-commerce game to attract more traffic and transactions from Indian users.
#DigitalErra Thought Corner
The online shopping experience is adopting yet another offline convenience to attract more customers to its portals.With the use of technology, the concept of ‘buy now pay later’ is being made more formal and widespread on online portals.In India, there are three such prominent service providers operating in India — Simpl, ePaylater, and Lazypay by PayU.
They are offering customers the option to ‘buy now and pay later’ option on online fashion portals, ticket booking websites, food ordering portals, aiming to migrate all cash transactions to digital.
“Ours is a cash-driven economy, accounting for at least 68 percent. In the US, it is at 9 percent. On the other hand, US has over 48 percent population using credit cards, against just 3 crore credit cards in India. To get people to move away from cash, you need to give them a fitting alternative which will be frictionless,” says Aurko Bhattacharya, co-founder of ePayLater.
According to industry estimates, cart abandonment rate on e-commerce portals in India can be a high 60–70 percent, meaning 70 in every 100 customers who are intending to buy product, don’t buy it.Due to it, online portals lost around $4.4 billion in revenue in 2015.While this can be attributed to several reasons, failure at the payment gateway is a major issue.
Nitya Sharma, co-founder of another such service provider, Simpl, feels that to create a digital economy, it is important to create utility value propositions for users to move away from cash. Simpl has tied up with over 30 merchants including BookMyShow, Faaso’s, FreshMenu, Box8 and Zipgo to offer this convenience to select users.
For the e-commerce companies, it is a good proposition to arrest the loss of sale opportunity due to transaction failures that account for at least 30 percent of their traffic.Besides, the pay later service also works as a customer acquisition tool for the online portals.
The amount that a user can avail Simpl’s convenience for is subject to their credit assessment and the typical transaction level of the user.
Pallav Jain, Head, Consumer Business, PayU India said, “As PayU we have been in the payments industry for long. The need for a service like LazyPay came about because merchants wanted to do away with payment drops. For consumers it is a frictionless transaction, eliminating the need for repeated OTPs, CVV numbers or net banking details.”
The company has over 150,000 users, and handles about 100,000 transactions a month, with an average ticket size of Rs 600–650. PayU will invest $50 million in LazyPay over the next two years with an aim to reach out to 10 million users.
Earlier, homegrown e-commerce major Flipkart toohad rolled out a ‘buy now, pay later’ option using which one can buy products on its platform on credit.With a pre-defined credit limit, a customer can make purchases on Flipkart throughout the month without having to pay for the products immediately.
In fact, even Voonik, a fashion portal that gives select users the option to pay later, feels that it helps them achieve better conversion rate. Currently, the portal gives the option to pay later only to those who have already got an approval from the service provider and on low value items.
How do they decide upon credit worthiness
Simpl and ePayLater have similar algorithms in place that use machine learning and advanced analytics to capture a user’s credit-worthiness, called Trust score.
To identify the select users,ePaylater runs an assessment using alternate data including social media profile, purchase pattern. The startup has partnered with over 20 merchants like PVR, Crownit, Indiamart, IndustryBuying and vareorganic.
“While we offer micro credit to the customer, we are a technology company at the core. With existing credit options, there is a tedious onboarding process driven by document analysis.Our credit assessment is data science and analytics,” said Akshat Saxena, cofounder, ePaylater.
The most prominent users of this facility are the customers who are categorised as ‘online first’. The service is opened up to selective customers, with high transaction frequency, while the amount of micro credit extended to a user also depends on the rating.
By giving the user the extra period of 14 days to make the payment, Akshat says the customer simply has to show up and make the purchase, without worrying about the payment.
“LazyPay is engineered with proactive analytics and machine learning algorithms. PayU processes three million transactions every day. Each transaction generates 15 direct variables, which helps to draw up a profile of the customer and come up with a ‘trust score’,” Jain explains.
On the merchant side, portals typically invest a lot on customer acquisition. A quick and convenient payment mode ensures the customers come back for another purchase.The portals these fintech startups workwith have seen increase in conversion rate depending on the vertical. Further, the option to pay later can greatly reduce the return rate on cash-on-delivery for online marketplaces.
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