BNPL for B2B
The Indian financial (and non-financial) ecosystem has seen tremendous growth due to digitalization. Financial digitalization has been led by start ups and disruptors. If we consider the recent past, for Wallets; Paytm and for UPI Paytm ; Google Pay and PhonePe were the major change agents.
For any business to scale up and do well, it’s of utmost importance to
· Understand consumer behaviour
· Agility
· Process Execution
· Good tech
· Luck obviously plays a major factor
The next wave and buzz is Credit on Pre-Paid Card also called Buy Now Pay Later (BNPL). In very simple terms, BNPL is a credit card issued by an NBFC. Overall, the penetration of credit card remains low in the country as they form around 6.5 percent of the total cards business. There is a large untapped market, which BNPL players are targeting.
For Hypto to build a product out of this, it’s important that each one of us understand the unit economics behind this. When a customer swipes a credit card or a BNPL card, there are numerous players involved and each one has their share of revenue. I am taking 2.5% as the merchant discount rate (MDR), which is the highest slab. We will have blended MDRs and actual revenue to us will be ~1%. If an NBFC provides an interest free loan for 35 days on a prepaid card spend, their income is 1%. This is almost 18% monthly reducing. And any loan roll over will result in higher incomes.
In this entire flow, most of us forget the merchant. How is that, they are able to absorb a cost of 2.5%. The fact is, that the 2.5% is already been incorporated in the way products are priced. So, it becomes a win-win situation for the customers and merchants.
I feel, this is a very powerful tool and the retail space is crowded with the likes of PostPe, LazyPay and UNI Cards. There is a huge scope in the B2B space for the same model and not many are looking at this. This can help in normal loans structured in a different way so that each party can avoid an interest pay-out. This will provide a lot of flexibility to small businesses where use case is transactional financing and not working capital. Increase in time limit for repayments is key for growth for many businesses. It’s a very viable small business tool. The idea is to extend small businesses the same flexibility BNPL provides for consumers
Clubbed with UPI and other products available with us, we can provide a complete cash flow management cycle to any NBFC.
Given that the product is on VISA / MasterCard rails, it will also provide agility by implementing the solution across countries, products, segments and various price points (ticket size).
This is one of the many use cases which we, at Hypto, are building. I would love to have a chat with people who have this requirement or any new financial use case to understand how we can help them go live 10x faster.
