Not later but now: Marketing strategies that BNPL sector needs in a risky economy

The times when credit cards used to be the only source of pay later in the world are gone. In this age, if you don’t want to go through the hassle of using credit cards, life has been made simpler by Buy-Now-Pay-Later (BNPL) apps. Almost every ecommerce site has incorporated these new financial gun machines to fuel consumer buying. Indian applications like ZestMoney and Simpl have now gained quite a bit of popularity among the younger crowd of the country. Worldwide as well, these applications have made buying and consumerism so effortless.

Although the BNPL apps gained traction during the pandemic, things have begun to get tough for the industry as economic uncertainties pave its way through the world and debt rises for some countries. So, this entire concept of having a business entirely depended on borrowing from the future could backfire. Experts believe BNPL as a sector is here to stay, but they need to gain consumer confidence through thoughtful business ideas and smart marketing.

BNPL Sector is here to stay

According to ResearchandMarkets.com, medium to long term growth story of BNPL industry in India remains strong. BNPL payment adoption is expected to grow steadily over the forecast period, recording a CAGR of 12.2% during 2023-2028.

Himanshu Arora, Co-Founder of Social Panga, believes the Buy-Now-Pay-Later industry will continue its upwards journey even during uncertain times. “This concept, which has youth at its very core, is taking up a bulk of the spending in the Indian economy in a fairly short period of time. In my opinion, the purchase patterns will continue the same way in the coming years, recession or not. This is because the concept works best in bridging the income levels of the public with their aspirations and wants, making them spend more than what they have. This drives the economy forward. Moreover, compared to the global economy, the Indian economy is expected to show favorable growth in the upcoming fiscal year 2023, as it strengthens its spotlight on going more hyper-local and digitally sound than ever.”

Troubles Ahead: What could change?

Sumeer Mathur, Chief Strategy Officer, Dentsu Creative India, believes the new RBI norms could bring trouble for the BNPL sector. “More than recession and inflation it’s the new RBI norms that will impact business and growth in this category. Till now BNPL was creating a new category by reaching out to customers who did not have access to credit. However, with the RBI taking its role as a guardian of customers, some industry players say the category will pivot to getting customers who have credit card access. In fact, the share of credit card users among BNPL customers has already increased. This means that the role of marketing will shift to creating brand preference and a new playbook would have to be devised for this role. The growth would also be tempered as this consumer has many other options.”

Arora cautions against rising inflation and talks about how we might see a shift in marketing for the BNPL industry. “Inflation will give trouble for the BNPL market. The borrowing costs for BNPL companies will soar, causing them to cut costs in other significant areas of their operations, including marketing. So, we might see a shift in how they market their services in this turbulent space. The focus will only be on the most important promotional aspects, with the budget being cut down on the rest. It will be interesting to see the marketing mix that companies like ZestMoney, Simpl, and Slice come up with in the upcoming year.”

According to Hareesh Tibrewala, joint CEO of Mirum India, the tie ups of BNPL companies with ecommerce is a good business strategy, but there are risks involved which might deter consumers away. “I guess as a concept Buy-Now-Pay-Later is here to stay. We need to look BNPL from business perspective and consumer perspective. From a brand/business perspective this is a good sales strategy. It ensures sales get booked even though money for the sale would come over a period. Thus, bundling this scheme as physical point of sale (POS) or tie up with ecommerce platforms offering the solution is a good way to increase business.

However, from a consumer perspective, you are effectively borrowing from the future to pay for today’s luxuries. In my opinion BNPL is a good idea for products that appreciate (like a house or jewellery) but doing this for depreciable assets like car/ vacation / phone etc…is risky and not really advisable.”

Smart marketing could be the elixir

Sanjeev Jasani, COO, Cheil India puts across his view on what could be the best way for the BNPL industry to move ahead during risky economy. “Marketing can play an important role in helping BNPL companies to stay afloat during a recession economy. Marketing efforts can help BNPL companies to attract new customers who may be looking for more affordable and manageable ways to make purchases during a recession. It can also help build trust and credibility which is particularly important during a recession.

BNPL companies during a recession economy should focus on building financial resilience: They would need to do this to ensure they can withstand potential losses from defaulters or decreased demand during a recession. This may involve strengthening their balance sheets and building up cash reserves.

Communicating transparently with their customers: In a recession time, the least a consumer expects is transparency. So being clear and transparent on terms and conditions and making sure that they are compliant with all relevant regulations will only help in building trust and credibility and will go a long way in building the brand.

Ensure long-term sustainability and growth: Adapting and reviewing strategies regularly during a recession time is most crucial. This could include adjusting marketing efforts, reviewing pricing strategies or changing products offerings.