A brief review of ‘Buy Now, Pay Later’ model

Pakistan used to be one of the most often overlooked countries when it comes to fintech investments but now it is one of the countries with the most potential. The world’s fifth-most populous nation is seeing record money flow into its startups with more than $305 million this year, higher than the past six years combined. Similarly, ‘Buy Now, Pay Later’ (BNPL) model is also heating up around the globe since the start of the year. Following the hype and the scale witnessed globally, local startups have also started coming up with their own BNPL offerings. That includes QisstPay from Islamabad and KalPay of Lahore, whereas Finpro and KistPay brand themselves as smartphone financing solutions.

QisstPay has raised $15 million in early stage investment, ahead of expanding to Sri Lanka and Bangladesh. MSA Capital led the round with participation including from Global Founders Capital, Fox Ventures and First Check Ventures. The Islamabad-based company wants to enter other South Asian markets within six months. The company serves retailers including the local units of Samsung Electronics Co. and Xiaomi Corp. and plans to have 1,000 merchants by next month and a million customers by next year using its service. QisstPay’s investors include strategic angel investments from Simone Mancini and Johnny Mitrevski, founders of Scalapay, and Pakistan’s third-largest lender United Bank Ltd.

There is a slight difference in the “credit card” and BNPL model. Credit cards work on an interest rate model where the customer pays for a certain good at any place that accepts cards and pays within a defined time frame to avoid any fees. But once the grace period is breached, markup starts accumulating, and that’s how the financial institutions basically earn their profits. BNPL companies, on the other hand, onboard individual merchants, allowing them to offer their customers the option to extend the payments over a specific period. The most common model is Pay in 4, which essentially spreads out the amount into four equal installments. QisstPay does Pay in 4 (months) but is absolutely free — not even late payments — to the end customer allowing order sizes ranging from Rs1,500-50,000. The merchant receives the full amount upfront while the BNPL player bears the entire credit risk, which they can try to minimize using their customer demographic algorithm, requiring CNIC or some other verification depending on the fintech.

BNPL players make their money on the merchant side where their platform not only brings in higher-value sales for them but also increases conversion and creates a recurring user base. For the customer, it’s more of a cash flow management system. There is absolutely no markup involved, so it’s fully Shariah-compliant as well. While e-commerce continues to be the major channel for BNPL globally — where the buyer simply chooses their preferred option at the checkout — there is also a growing trend of point-of-sale financing. QisstPay plans to do both with some 100 merchants already live for the former while in-store integrations are to come online in a few weeks.

According to the State Bank of Pakistan’s Annual State of the Economy report, digital e-commerce transaction value was Rs93.8billion — accounting for a 40 per cent share — of which Rs73.7billion came from credit or debit cards. Though the latter is growing at a healthy compounded annual growth rate of over 37 percent, it’s still too small a number to make a sound and sustainable business.

The latest budget makes it mandatory for retailers to start accepting card payments which open up the market for BNPL, but overall it will take another five or so years to develop as digital payments pick up pace. There’s also another dimension to this entire industry, which is primarily based on the premise of driving consumption, in a country where there is hardly any certainty with respect to the present economic situation. Encouraging individuals to spend beyond their means in such an environment is not advisable at the moment but the investors have confidence in this model and are ready to venture in this new area.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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