Making smalltalk

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Indians are the best at ‘jugaad’. And when it comes to innovation in fintech, companies are going all out with jugaad. 

Yes, we’re talking about the birth of the lately infamous BNPL – buy now, pay later. 

The BNPL industry grew by a mindboggling 539% in 2020, and took it a notch up in 2021, during which it grew by 637%!  Click To Tweet

By 2026, the number of BNPL users in India may increase from the current 10-15 million to 80-100 million, according to the Indian consultancy firm RedSeer. Additionally, the company predicts that the country’s BNPL market would more than double to US$45-50 billion by 2026 from its current US$3-3.5 billion.

What caused the meteoric rise of this industry?

BNPL made dreams come true. 

The aspirational class was often denied the luxuries of life due to financial insufficiencies. The BNPL system enabled them to purchase things that their salaries, or constantly denied credit cards from banking institutions wouldn’t. 

They essentially implemented the khata system into all aspects of payment, and not just at chai stalls. 

So, is the RBI trying to kill BNPL?

The RBI recently issued a notice to some of these BNPL players asking them to stop issuing “credit cards” to users. Players like UNI, Slice, LazyPay, and more have been issuing physical cards for their users to pay at stores, making the experience the same as that of credit cards. 

However, these are slightly different from credit cards, and that’s where RBI’s concern lies. 

The cards issued are prepaid payment instruments (PPI) – they’re like those Smaaash or Timezone cards. They come topped up with a certain amount prepaid by your NBFC, enabling you to make purchases and pay them in easy instalments. 

However, since RBI mandates that non-banking institutions cannot issue credit cards, they’ve asked these companies to stop issuing cards while staying in touch with them to better formulate the regulations for this earlier overlooked loophole. 

This news follows the much-discussed RBI regulation that allowed credit cards to integrate with UPIs. Only after the new regulations come in will we be able to assess how much the end-user shall be impacted. 

Hassle-free loans or debt spiral?

While these companies provide loans instantly, there is a downside to the crowning innovation of BNPL – a debt spiral.

A recent survey on BNPL payments, by independent research company Benori Knowledge, indicated that – 

An astounding 90% of respondents claimed that BNPL caused them to spend more money than they had expected. Is the RBI killing BNPL? Click To Tweet

Additionally, 40% of respondents claimed that BNPL had caused a 30% rise in their monthly expenses. The monthly expense increased by as much as 50% for one-third of the responders.

Plus, some of these companies give you up to 24-30 months of instalment periods – the question is, will you still be using what you bought, as vigorously, even in your 30th month? 

In conclusion…

If implemented strongly, this decision could force companies to revamp their entire business models. Take an example – ​​ internet handling fees or card processing fees were Slice’s largest income source in 2020–21. Of the ₹35.25 crores they earned in operating income, the two mentioned accounted for ₹26.9 crores.

However, as we said, the RBI is in talks with these companies to come up with a plan. Its recent announcement of Payment Vision 2025 looks promising. And considering that this industry is growing at a gigantic rate (forecasted to become #1 in the world by 2026), the RBI will keep in mind the potential of the space. 

Bullish on the rise of digital in financial spaces?

The Digital Inclusion smallcase comprises companies spearheading and benefitting from the digital revolution in India. 

Read more here. 

Digital Inclusion smallcase by Windmill Capital

Markets Last Week

Brought to you by Windmill Capital 

After 2 weeks of decline, markets take a breather! In the week gone by, the Nifty 50 benchmark was up around 2.5% on the back of a positive thrust from major sectoral indices. The top gainers were – Nifty Auto and Nifty FMCG indices. While there isn’t any structural news around the mentioned sectors, most of the market movement has to do with ease in headwinds. For instance, auto players are witnessing a better demand environment and at the same time enjoying ease in the chip shortages issue. 

On the losing side, Nifty Metal was the top loser. You ask, why? Because global metal prices have declined substantially in the last fortnight. This in turn compels domestic players to reduce their prices accordingly. 

Now, let’s move on to a few key market developments that took place over the course of the week:

1. International equity investing resumes for the MF industry – Market regulator, SEBI, has given a go-ahead for Indian Mutual Funds to resume investing in international equities within the $7bn mark. Si,nce the overall industry AUM has decreased due to market decline, the pause has been lifted. Though, it is important to note that many fund houses are not resuming their investments as per their discretion.
2. PLI scheme – The Government of India has extended the telecom PLI scheme by another year, wherein they’ll extend the incentives by around ₹4000 crores. This move could potentially give thrust to telecom players, as they would strive for better services and infrastructure.

Inside smallcase

Wondering what others are investing in during prevalent market conditions? Here are our top smallcases that users invested in between 13th-19th June – 

This week, we’ve been…

Reading Attached by Amir Levine and Rachel Heller: Have you wondered if you have a pattern in the way you behave in relationships – be it platonic, romantic, familial, or otherwise? This book identifies why some people seem to navigate relationships effortlessly, while others struggle. Read to know what’s your attachment type according to John Bowlby’s pathbreaking research in 1950s, and how it defines your relationships with people. 

Watching on loop From The D 2 The LBC by Eminem and Snoop Dogg: This latest drop from friends-turned enemies-turned friends takes us on a visual journey as the two musicians flaunt their NFTs from the Bored Ape Yacht Club collection. This video is an indication of what the future of NFTs might shape up to look like. 

Are you a regular user of BNPL? If banned, how will you be impacted? 

We’ll go first – If BNPL disappeared, our daily desserts from Corner House would disappear too 🙁

If BNPL disappeared, my ________ would disappear too 🙁 tell us on twitter

Salary day is around. Hope you’re planning your next investments already! Until next week, stay hydrated, and invested.