One-Click Credit

Indrani Bose, a media professional, orders breakfast on Swiggy every day. After nearly two years of paying via card or m-wallet, she has now shifted to pay-later, ‘a faster and a more convenient option’. “In the morning, I am too drowsy to enter payment details or refill the wallet. The pay-later option has become a default for me,” says the 23-year-old, who has set a weekly spending limit of Rs.5,000.

Convenience first

Pay-later services such as Lazy Pay, Simpl and ePayLater provide credit-based payments on one click. There is no hassle of entering one-time passwords (OTPs), submitting Know Your Customer (KYC) documentation or re-entering account details as with cards and net banking. With pay-later, you can defer payment for your purchases from multiple online vendors, and just like credit cards, pay all of it together at regular intervals. The offered credit is between Rs.500 and Rs.25,000, depending on a customer’s credit profile and usage. There is no interest charged on the credit, and revenue for the pay-later companies comes from merchants who pay them per transaction. 

Lazy Pay, the deferred payment option from PayU India, claims to have processed small-ticket credit at an annualised volume of $80 million. Launched in April 2017, it has more than 250,000 users, and more than 100 merchants on its platform. Lazy Pay clocks around 15,000 transactions every day, each averaging Rs.700. “Some customers use Lazy Pay for instant credit, while for others it is about convenience,” says Pallav Jain, head of consumer business at PayU India.

Simpl, founded in 2015, also provides similar services and is available across 100 merchants. “The big convenience is that you can simply transact with one-click on various apps and websites. For all the purchases, you get one bill, every 15 days,” says Roshan Sam, head of customer experience at Simpl.

Paradigm shift

With KYC norms taking away the convenience of mobile wallets, Sukhada Dhopeshwarkar, a marketing professional, has started using the pay-later option. “It’s more convenient to use a one-click option to order food,” says the 25-year-old. KYC norms do not apply to transactions up to Rs.2,000, and though pay-later offers credit till Rs.15,000, they have been allowed do so by the RBI. Simpl’s Sam says that their offering doesn’t fall under the definition of credit products. “Simpl provides a platform to merchants and earn fees from them. We don’t earn money by charging users interest,” he adds.

While the pay-later companies are gaining traction, traditional m-wallets seem to be losing steam after the RBI made it mandatory for prepaid payment instruments such as mobile wallets to be KYC-compliant. According to RBI data, the number of m-wallet transactions dropped from 326.3 million in January to 310 million in February. In March, transactions fell further to 268.79 million. Of late, though, there has been a recovery, with the number of transactions touching 309.62 million in June, valued at a record Rs.140 billion. Despite that, the advent of pay-later services signal a rough road ahead for the mobile wallet industry.

Ravi Sharma, senior analyst at Global Data’s payments practice, says ensuring KYC compliance is also bound to increase cost of acquiring new customers and verifying existing users. “Mobile wallet players such as Paytm will have to set aside a chunk of their profit for the cost of collecting and maintaining KYC data. It will impact their topline and bottomline.”

He adds that customers are not comfortable sharing their KYC data online because of the risk associated with it. “Only 50% of the m-wallet users in India have completed their KYC. However, I believe that this trend will change in the long run. The cost of other payment instruments such as debit and credit cards is higher compared to m-wallets, for the merchants,” says Sharma. Although he is optimistic about mobile wallets, pay-later companies believe that they have an edge over these wallets. “Simpl is like having a pre-loaded wallet, and people always stick to what is faster,” says Sam.

Uday Somayajula, co-founder, ePayLater shares a similar sentiment. “Look at how the payment industry has evolved — after debit cards and gateways, it was wallets. Then came UPI (Unified Payment Interface), which is also picking up traction. The key driver of change has always been convenience of users. We have transcended these payment modes and made purchase more convenient by bringing it down to one click,” he says.

Brisk credit

Dhopeshwarkar also sees pay-later services as a credit fix. She uses them for a range of purposes such as food delivery, travel and movies. “By the end of the month, I am cash-strapped, and pay-later gives me much-needed credit,” she says.

However, Simpl and Lazy Pay want to be more than creditors. They are focusing on creating an online version of kirana stores, where a customer has an ‘udhaar’ or ‘khaata’ option. This also builds customer loyalty towards merchants. “If you buy goods from one shop or merchant over time, you develop trust, and vendors even let you pay at convenience. We are trying to recreate the same experience,” says PayU’s Jain.

However, this option is made available to a user based on historic and live data. The historic data includes transaction frequency, returning transactions, average purchase amount and SMS. Live data includes information that is on device, and location of payment. 

Lazy Pay has an advantage over its competitors, as it already has credit history of 1.5 million users who use its gateway. However, Jain believes that live data is as important as historic data to determine the creditworthiness of a user. The credit score of a user is derived from multiple variables.

“A new number accessing the service may not have a good trust score, and hence may not be eligible for credit. As a customer develops history, it helps us provide a credit limit by utilising alternate data such as transaction history or other information like social media for which customer has granted access, and analytics,” says Jain.

Similarly, Simpl sets a default spending limit of Rs.2,500 to Rs.5,000, and looks at regular repayment and spending habits to decide whether the credit should be increased to Rs.20,000.

Another way of increasing the credit limit on Simpl is through their app, which does further verification using data available on a user’s phone. “The more information a user can give us, the more confidently we can predict how much their spending limit should be,” says Sam.

ePayLater, which provides the pay-later service on the Indian Railway Catering and Tourism Corporation (IRCTC) website, also relies on algorithms and a user’s profile such as transaction on merchants’ platforms and social-media accounts. “We look at traditional and non-traditional data. With the boom in e-commerce, there is a lot of data which people are leaving behind as footprints on the web,” says Somayajula.

Widening reach

Like IRCTC, more than 100 merchants such as Croma, PVR, Swiggy, Bookmyshow, Grofers and Zomato have added this payment option to their page. They either partner with a service provider or start one on their own. “Payment failure rate via cards or net banking is 10%.We have a success rate of 100%. The retention rate on merchant platforms is 75% higher on Lazy Pay, compared to other payment modes due to zero failure rate,” says Jain.

MakeMyTrip, Flipkart and Ola have even launched their own pay-later option. On IRCTC’s ePayLater-run service, a first-time user needs to provide details such as email address, telephone number and a link to Aadhaar or PAN card. As instant payment helps with booking Tatkal tickets, pay-later is the most preferred option in this transaction. “Tatkal booking accounts for at least 40% of our booking on IRCTC’s website,” says ePayLater’s Somayajula.

Though they swear by the convenience they offer, defaulters are the biggest concern for pay-later companies. A company must be KYC-compliant to report default to the credit bureau. Since pay-later companies do not collect KYC details, they cannot report defaulters. In spite of that, Lazy Pay claims that its defaulter rate is low, at approximately 4%. Microfinance firms also have similar default rates, according to the Microfinance Institutions Network’s report.

The pay-later companies say that their smart algorithms, which track creditworthiness, help them update user behaviour frequently. “Our cycle is 15 days, so we have fresh insights on a user’s behaviour every two weeks. Credit limits are changed in line with that. We don’t slap any one-time penalty, since hidden charges put people off,” says Jain.

While Simpl charges penalty of up to Rs.250 and blacklists a person after 90 days, Lazy Pay imposes a penalty of Rs.10 per day. “The action also varies from borrower to borrower,” says Sam.

A survey by Global Data, released in February 2018, revealed that m-wallets became a mainstream payment instrument in 2017 in India across e-commerce platforms, and the share of cash or cheque transactions was only 16% last year. With more customers ready to shun cash-on-delivery, pay-later companies look ready to expand.

“Merchants now approach us, and we also receive feedback from customers and merchants asking us to raise the limit so that they can use it more frequently,” says Jain.

While Lazy Pay has increased its credit limit to Rs.15,000, Simpl is keen on adding more customers. “Every week we go live with three or four new merchants,” says Sam.

With more users transacting online, pay-later companies could prove more effective than credit cards in bringing both convenience and customers to major merchant platforms.